After two years of stock and option trading I stopped on volatility trading. My strategy is very simple:
1. Pick liquid, volatile stock like FB for example;
2. Looking for Implied Volatility (IV) percentile below 10% for duration about two weeks;
3. Check for no news;
4. Check for technical setup. Better if it is bullish;
5. Buy at the money, six months Straddle;
6. Placed plus $100 limit sale order;
7. Wait. Sell in 2 â 3 months before Theta sufficient impact.
First five in the row trades were successful. When, I have noticed a spike on IV chart but no gain in my straddle.
In my example it was FB (Face book) Mar2014 50 Straddle.
I have bought it on Oct 02 2013:
Stock price = $50
Straddle price = $13.65
Mean Opt. Implied Volatility = 43.87%
FB Mar 2014 50 Call implied volatility = 49.88%
Oct 15:
Stock price = $49.86
Straddle price = $12.96.
Mean Opt. Implied Volatility = 97.09%
FB Mar 2014 50 Call implied volatility = 48.36%
Oct 18:
Stock price = $54.26
Straddle price = $14.8
Mean Opt. Implied Volatility = 70%
FB Mar 2014 50 Call implied volatility = 53.45%
On IV chart we can see a spike up to 100%. That is what I am looking for in my strategy.
But my contract FB Mar 2014 50 Call IV dropped on the spike and rose after. Which is good, I took my unexpected profit anyway.
Now I understand, in my first five trades I didnât trade volatility. I was lucky that stock rose quickly. In the money Call appreciates faster than out of money Put depreciates. Anyway, I donât have reliable information to utilize my simple strategy. Composite IV is misleading. I am not clear what kind of IV I need. I am trading on Interactive Broker. They donât provide history of individual options IV. It might work for me or might not. I suspect that might be not practical to use that charts, simply because IV probably will rise during the lifetime without sufficient oscillations. Maybe I need IV daily calculation of at the money, six months straddle? In this case, as underline price moves or time pass, I will have to use different contracts???
I am in total frustration, couldnât handle the simple strategy. Could anyone please, clear that out?
Thanks.
1. Pick liquid, volatile stock like FB for example;
2. Looking for Implied Volatility (IV) percentile below 10% for duration about two weeks;
3. Check for no news;
4. Check for technical setup. Better if it is bullish;
5. Buy at the money, six months Straddle;
6. Placed plus $100 limit sale order;
7. Wait. Sell in 2 â 3 months before Theta sufficient impact.
First five in the row trades were successful. When, I have noticed a spike on IV chart but no gain in my straddle.
In my example it was FB (Face book) Mar2014 50 Straddle.
I have bought it on Oct 02 2013:
Stock price = $50
Straddle price = $13.65
Mean Opt. Implied Volatility = 43.87%
FB Mar 2014 50 Call implied volatility = 49.88%
Oct 15:
Stock price = $49.86
Straddle price = $12.96.
Mean Opt. Implied Volatility = 97.09%
FB Mar 2014 50 Call implied volatility = 48.36%
Oct 18:
Stock price = $54.26
Straddle price = $14.8
Mean Opt. Implied Volatility = 70%
FB Mar 2014 50 Call implied volatility = 53.45%
On IV chart we can see a spike up to 100%. That is what I am looking for in my strategy.
But my contract FB Mar 2014 50 Call IV dropped on the spike and rose after. Which is good, I took my unexpected profit anyway.
Now I understand, in my first five trades I didnât trade volatility. I was lucky that stock rose quickly. In the money Call appreciates faster than out of money Put depreciates. Anyway, I donât have reliable information to utilize my simple strategy. Composite IV is misleading. I am not clear what kind of IV I need. I am trading on Interactive Broker. They donât provide history of individual options IV. It might work for me or might not. I suspect that might be not practical to use that charts, simply because IV probably will rise during the lifetime without sufficient oscillations. Maybe I need IV daily calculation of at the money, six months straddle? In this case, as underline price moves or time pass, I will have to use different contracts???
I am in total frustration, couldnât handle the simple strategy. Could anyone please, clear that out?
Thanks.
