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Expert technical analysis of financial markets by JC Parets

[Options Premium] When the Volatility Ducks Are Quackin’

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As I and the team have discussed on The Morning Show and this week’s Options Jam Session, I’m on the hunt for opportunities to sell delta-neutral option premium with $VIX exploring higher levels than we’ve seen in recent months.

Today’s trade is in a sector ETF exhibiting elevated options premiums and signs for extended rangebound action.

And October options are offering us enough premiums to trade strikes sufficiently far away from current action, beyond significant support and resistance levels.

As far as setups for delta-neutral premium collection go, this one checks all the boxes.

Here’s the Play: [Read more…]

[Options] I’m in the Mean Reversion Business

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A reader recently reached out to me, asking about a trade I put on.

I’m paraphrasing, but the conversation went something like this:

Reader: “The implied volatility of the MSTR June 450 calls is 64.7%. That is far from cheap, no?”

Me: “The absolute number of implied volatility is meaningless to me. I’m paying attention to its relative value. I want to know where IV is now compared to where it’s been.”

Reader: “Wow. That amazes me. I always thought the implied volatility was an indication of how expensive an option was. Could you write an educational piece on this sometime please?”

Dear reader, your wish is my command.

Here’s the thing about options premiums (and implied volatility, or “IV,” which measures premiums) – they mean revert.

When IV spikes, it’s only a matter of time before it comes back down. And when IV is low, it’s likely that any sudden premium moves will be to the upside, not the downside.

Why is this true? [Read more…]

[Options] Sliding Sideways For The Rest of Summer?

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As is common when the stock market is moving lower, we’re seeing rising options premiums. We aren’t seeing any big volatility spikes yet, and $VIX is still relatively muted, but the recent rise coupled with setups that appear to be ripe for some sideways action in the coming weeks and months has me on the hunt for delta-neutral premium selling opportunities.

Today’s trade is in a metals and materials stock that appears to be stuck in a year-long range that we’re betting on continuing.

Check out this chart of Freeport McMoran $FCX for a visual of what we’re seeing: [Read more…]

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