In my readings and learning about options, particularly Iron Condor contracts, some videos (can I mention a broker? - TastyTrade) notes that ideally one should consider options that have high Open Interest, High Volume (liquidity) and high IV%. This has me confused. In a short IC, one wants the strike price to remain within the boundaries of the short put and the short call. An option with high volatility would be more likely to break-through and reduce any possible profit, wouldn't it? Seems to me that one should consider the high Open Interest, high Volume but seek Low Volatility %. Do I have this wrong? Thank you for a reply.
. So, going forward, perhaps it's better to consider IV% closer to 50-60% rather than the 25-30% I have thus far considered. Thanks for a right to the point reply.
Nice to see you picking this stuff up and doing the work!!! From what I can tell,your terminology is off.You are long the IC if you are short the spreads. I believe you meant to say the Stock price not strike price remaining within boundaries. Ideally the stock price stays in between the short options,not the Long.. You are confusing High IV with High realised vol.You would like to sell IV as high as possible,and have low realised vol. Go price the individual option spreads and start at 10 vol snd work your way up to 100 vol..See how your risk reward changes.. FWIW,an IC is a bunch of staggered Flys on top of one another.Other thsn DOTM Flys ,higher vol equals cheaper flys
Terminology may be off. Using Tasty Trade calculators to get POP, IV% and P50. Yes, the stock price, not strike price. Haven't had my second cup of coffee yet. Where might I find Realised Volume? I have several sites that I'm subscribed to - Barcharts.com, Stock Screener, Stock Charts, Yahoo Finance, etc. This is what Tasty Trade calls a Short IC: Buy $9 Put Sell $9.50 Put Sell $12.50 Call Buy $13.00 Call Thanks.
It's Realised Volatility,not Volume.Some may call it Historical Vol..It relates to the stocks actual volatility.. I could be wrong but I call that a long IC. Tasty probably has Historical Volatility.. What the heck is Pop and P50??
POP is probability of total (max) profit and P50 is probability of realizing a 50% profit of max profit.
POP changes based on strike prices selected, width of strike prices and expiration dates. Number of contracts seems to not influence POP or P50.
TT relies on IV Percentile as a Signal for selling Options, which makes you short Volatility in that moment. They go with the assumption that realized vol<implied Volatility (which at least for the S&P is more often true than not) and the fact, that IV is mean reverting (during a given time span). Hence 45 days for theta and mean Reversion. When the IV Crush comes your IC ideally looses in value and you can buy it back for cheaper than what you sold it for. Certain catalyst make the IV rise, Earnings are one of them. Be carefull trading those. Optionalpha doesn't trade them anymore after backtesting them bc of heavy drawdowns and thus low RoC