This is purely from my observation in the last month when I was trading TSLA ATM call. I noticed that if there is an intraday price spike, especially in the first hour of trading, the IV will spike too which causes the option price to be overpriced, then gradually the option price will come down over the next couple of hours. This give me the idea if this is worth something to explore. For example, I basically find the stocks that tend to be volatile during the trading day then I short a strangle if I detected the IV spike, and I'll wait for the IV to come down to close the position to make a profit. Another way to do this is you buy the strangle before the market close and wait for a IV spike the next trading session. There's got to be some volatility during the trading day, so hope that will give some profit, right? I know the time decay will kill my strangle over time, my idea is to keep the position open for just one day, and hopefully close it at break even if there's no profit. While I was doing my research I did find there's a book that talks about the exact same thing. but to make sure that I am here selling that book I won't post the link. And there are a lot of researches that talks about trading volatility over a long period of time, but I did not find if this is worth day trading. this is very hard to backtest as most feed do not have the option bid/ask history. This is my very first post on this forum, hope to hear some feedback.
1) You can only "learn" by doing. 2) To daytrade options can be a little trickier with price fluctuation and volatility fluctuation not always doing what you want them to do, quickly enough.
Strategies of this rough type are occasionally viable, but in order to figure out what exactly the strategy is, what the constraints are, etc etc, you need to do serious amounts of work. Moreover, have you considered the possibility that, even once vol comes down after the spike, you won't be able to buy back the strangle at a price that actually realizes you some profit? Part of the reason could be bid/offer, but part of it could be just due to the delta... As to your strategy of buying strangles, why do you assume that there will be sufficient volatility the next day to pay for the theta and the bid/offer? I would bet, based on my experience, that the mkt prices these things pretty efficiently and, as a rule, you pay, rather than get paid.
You observed this delta-adjusted I assume? Or else it would be useless, because need to know if it's actually the IV or some other factor affecting the price. Also most options I find are too illiquid to daytrade. There are some exceptions, but rather few (AAPL, GOOG, SPY)
Please send me the list of stocks whose IV will pop significantly at the open tomorrow (ideally a few minutes prior to the previous day's close). Much obliged.
I have been watching and trading TSLA these days. Then I found a some article that talks about trading intraday vol. I am writing some code to test this too, as some folks pointed out it did require a lot of work.