VLAD KARPEL CEO AND FOUNDER, TRADESPOON

STRATEGIES GUIDE BASED ON IV RANK

This is your step-by-step guide to selecting the correct trade strategy based on IV rank. In order to become a successful trader, not only you have to study underlying asset price movements based on different cycles, but also design correct strategy based on IV cycles. IV tends to move higher prior to a binary event due to uncertainty. IV will then revert to its lowest point after the binary event transpires.

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INTRODUCTION

Selecting the right strategy based on IV –  Before placing a trade, you need to study implied volatility (IV) of an underlying asset

relative to its historical data (IV Rank). Based on the study you can eliminate all of the strategies that “don’t make sense” for your volatility outlook. For example, if IV is high and option pricing is rich we can eliminate all option buying strategies like debit spreads, calendars, long single options, etc. From the short list of possible strategies that remain (credit spreads, iron condors, butterflies, etc.) we can choose the strategy that best fits our risk tolerance and account size.

–  IV Rank is determined by looking at current IV relative to the lowest IV number in the past

52 weeks. If the current IV is close to the lowest IV for the past 52 weeks, debit strategies make the most sense. If the current IV is close to the highest IV for the past 52 weeks, we would recommend credit strategies.

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UNDERSTANDING IV

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BULLISH STRATEGIES

Bullish & Implied Volatility Sentiment: Low Medium High

Buy Calls Buy the Stock Sell Puts

Buy ATM Call & Sell OTM Call

Buy ITM Call & Sell ATM Call

Buy ATM Put & Sell ITM Put

Buy OTM Put & Sell ATM Put

Sell ITM Call Fly Buy OTM Call Fly

Buy OTM Call Calendar

Buy ITM Call Calendar

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BEARISH STRATEGIES

Bearish & Implied Volatility Sentiment:

Low Medium High

Buy Puts Sell Stock Sell Calls

Buy ATM Call & Sell ITM Call

Buy OTM Call & Sell ATM Call

Buy ATM Put & Sell OTM Put

Buy OTM Put Call Calendar

Sell OTM Call Flies Buy ITM Call Flies

Buy ITM Call Calendar

Sell OTM Call Calendar

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