IV Percentile & Premium Question. Please help!

desinaner · Jun 30, 2020

Hey people! I just signed up to ask a couple questions and hopefully get some insight on a little confusion I had.

After a lot of reading and watching of tasty trade videos, I've been trying to put on some credit spreads. After using the scan tool in the ToS platform to find stocks that have a high IV Percentile (figuring they will pay high premium), I noticed I am having a hard time finding stocks that are allowing me to get 1/3 the width of my strikes for credit. I am trying to mimic the trades off tasty trade by selling at least 1 SD out, but the credit being received is horrific for what I am risking. Sometimes selling a put and buying the put one strike lower wouldn't even being giving a credit?

I realized that, against my intuition, maybe the market conditions are not great for selling premium. So I looked at spx, and noticed it had an IV percentile of about 30%. What I am not understanding, however, is that when I chart SPX with Imp Vol on the bottom, the imp vol looks very high (obviously lower than march, but..) when compared to the past year; there's no way the imp vol over the past year was lower than the current level only 30% of the time. Besides the spike from Feb-April, it's looks like its been about half the current level for the majority of the time. I would understand if it was IV rank and just showing where it is in the range, but that's not the case.

Any help is much appreciated!

PS. Does it matter if the overall market is not very volatile if you can find individual stocks that are high in their range of imp vol? Or is trading options similar to stock where you are trying to 'go with the overall tide' of the market? Thanks again for any help guys.

Atikon · Jun 30, 2020

desinaner said:
Hey people! I just signed up to ask a couple questions and hopefully get some insight on a little confusion I had.

After a lot of reading and watching of tasty trade videos, I've been trying to put on some credit spreads. After using the scan tool in the ToS platform to find stocks that have a high IV Percentile (figuring they will pay high premium), I noticed I am having a hard time finding stocks that are allowing me to get 1/3 the width of my strikes for credit. I am trying to mimic the trades off tasty trade by selling at least 1 SD out, but the credit being received is horrific for what I am risking. Sometimes selling a put and buying the put one strike lower wouldn't even being giving a credit?

I realized that, against my intuition, maybe the market conditions are not great for selling premium. So I looked at spx, and noticed it had an IV percentile of about 30%. What I am not understanding, however, is that when I chart SPX with Imp Vol on the bottom, the imp vol looks very high (obviously lower than march, but..) when compared to the past year; there's no way the imp vol over the past year was lower than the current level only 30% of the time. Besides the spike from Feb-April, it's looks like its been about half the current level for the majority of the time. I would understand if it was IV rank and just showing where it is in the range, but that's not the case.

Any help is much appreciated!

PS. Does it matter if the overall market is not very volatile if you can find individual stocks that are high in their range of imp vol? Or is trading options similar to stock where you are trying to 'go with the overall tide' of the market? Thanks again for any help guys.

if you get a high IV Rank, you can get 25% of the Range, I have rarely seen 1/3 (except for Feb/March/April 2020).

Flynrider · Jun 30, 2020

What TOS calls “IV Percentile” is calculated basically the same as what TW calls “IV Rank”. TW has both “IV Rank” (e.g. where located within the hi/low range) and a properly calculate “IV percentile” (e.g. where located as a percentage of the past observations).

desinaner · Jul 1, 2020

Flynrider said:
What TOS calls “IV Percentile” is calculated basically the same as what TW calls “IV Rank”. TW has both “IV Rank” (e.g. where located within the hi/low range) and a properly calculate “IV percentile” (e.g. where located as a percentage of the past observations).

Thank you! That definitely clears things up for me. I’m pretty surprised considering I viewed TOS as the top dog of trading platforms so that’s strange they have iv percentile like that. Maybe TW created currently accepted iv percentile in addition to iv rank? Hmm

Anyway, do any of you reading this relate to what Atikon said about only finding 1/3 of the width for credit during Feb-March? I suppose they’re saying that should be the goal to shoot for, but if I have an 84% chance of success I wouldn’t technically need 1/3 of the width to put on a +ev trade. If any one is willing to elaborate on what risk/reward is acceptable to put on trades Id appreciate it!

Thanks for the replies!