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Market Measures

Contrarian Time Frames | Low IV

| Dec 1, 2014
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    Market Measures

    Contrarian Time Frames | Low IV

    Dec 1, 2014

    The contrarian approach is a major pillar in our trading strategy. However, there are sometimes that this conflicts with our other major philosophy of selling high Implied Volatility (IV). This is most commonly the case when the market has seen a large rally. Normally after a rally, IV is low but we may want to take a contrarian approach by selling calls in order to get short. If we were to do this, is there any advantage to the time frame that we use?

    Today, Tom Sosnoff and Tony Battista take a look at selling calls after the market has risen 5% over 10 trading days. They compare selling a call with 15 Days to Expiration (15 DTE) looking for a quick reversion, selling a call with 45 DTE looking for a moderate reversion and selling a call with 75 DTE looking for a slower reversion. The further out in time you go, the larger the amount of premium you will collect. However with more time, the underlying could move in your direction but then reverse so your call would be tested. Tom and Tony find out that you can maximize your profit per day by sticking to our standard 45 DTE range!

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