What are the inputs for the IV formula? Does it include options premium or price as you call it? I don't think that you fully understand implied vol, IV rank, IV percentile, etc.
well, I am going to refrain from further comment ... just wanted to point out that this (the mean reverting) might work for a long time in rather normal slow markets but when it gets wild it will totally stop working ... I gave some examples; this happens every few years or so and when it does it can be monstrous ... your database is obviously too young to have these in them ... most people here joining the thread don't seem to have too much option knowledge ... let's say I did what I could do, now it's up to you to draw lessons from the things I wrote or not ... the only way you'd probably could make this work is when have a balanced portfolio of under and overvalued options and stop trading when you don't have the balanced portfolio model anymore ...
Shay: I am a bit confused why you are focusing on the price of the option, instead of the IV of the option. If you focus on the IV, that is the "only unknown variable". The price contains strike, underlying price, DTE, interest rates, dividends, whether PUT or CALL, which are ALL known. I think you may be attempting to detect "mispriced" options? If so, that will be represented in the IV values which are possibly out of the norm. However, perhaps I have missed your intentions. (Note: I have been focusing on IV lately, so I may be like the guy with a new hammer will all problems looking like a nail!) ;-)