This segment is about the benefits a spike in volatility brings to premium sellers and specifically how shorter term volatility is affected more than long term volatility. Anyone selling premium can benefit from watching this.
A large move in the market, especially to the downside, usually results in a spike in volatility. Short term volatility is affected more than long term volatility. This provides opportunity for tastyliver’s as premium sellers. We can sell strikes further away for a larger credit. Most tastyliver’s probably know that already but this segment provides some hard numbers.
The market’s expectation of movement in the market over a given time is reflected in the implied volatility. Generally speaking, long term volatility is more stable than short term volatility and is also higher When volatility spikes long term vol is still more stable but short term vol can move higher than long term. This is displayed graphically.
During market uncertainty the larger moves will occur in shorter term volatility. Longer term moves but not as much. A table was displayed of both the 1-day biggest percentage up and biggest percentage down move for 2-week volatility, 1-month volatility, 3-month volatility and 6-month volatility.
Another table compared a short 1 Standard Deviation Put closest to 45 days to expiration (DTE) to a short 1 Standard Deviation Put closest to 6-months days to expiration (DTE). The table included the strikes away and the credit received for both short puts the day before the August 24th “crash” and the day of the “crash”. Tom and Tony noted the differences and point out the lessons to be learned.
Takeaways:
Option traders love when implied volatility spikes -- it increases our potential for success
Volatility allows us to go further out-of-the-money while tying up money for less time
Short-term volatilities tend to spike higher than longer-term volatilities during times of market stress and uncertainty
Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista to understand the takeaways and see the data comparing short term volatility to long term volatility during market uncertainty.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.