This segment contains a discussion and explanation of implied volatility rank (IVR) and the results of a study in the differences in selling a high IVR stock based upon different time intervals. Is there an advantage in measuring IVR over shorter periods than a year?
A primary metric we use when analyzing premium is implied volatility rank (IVR). We seek to short premium in underlyings with high implied volatility. We can see where IV is in relation to a given time period by using the dough platform. A graph was displayed showing the implied volatility of the S&P 500 which showed its high IV of 26 and its low of 11 over the last year. The graph showed that implied volatility was currently at 12 which is 7% between its low and high price. This tells us that the IV Rank (IVR) is currently at 7.
The standard measure is a year but dough enables us to look at different intervals. The belief at tastylive is that we should trade small and trade frequently. Using a shorter period for our implied volatility rank (IVR) calculation would result in many more occurrences of high IVR and more trading opportunities
A study was conducted from june 2005 to present using the IWM (Russell 2000 ETF) SPY (S&P 500 ETF) and TLT (20-year US Treasury ETF). We sold a 1 standard deviation strangle on the first trading day of the month using the expiration closest to 45 days to expiration (DTE) and when the IV Rank was above 50%. We compared the results using different timeframes of IV Rank. We used timeframes of 1 month, 2 months, 6 months and 1 year.
A table was displayed comparing the different IV rank time periods for the short strangle. The table showed the results of the P/L, percentage of profitable trades and average P/L per day.
Watch this segment of "Market Measures" with Tom Sosnoff and Tony Battista to learn which time frame is best for IV Rank and for the other takeaways from this study.
The traders in this segment are using features of Dough, our trading platform.
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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.