After posting my recent options article “High-Probability Options Trading Thrives” where I demonstrated an 87% options win rate throughout the bear and bull markets in Q4 2018 and Q1 of 2019, respectively, I received a lot of questions. I previously walked through how powerful options are and how you can be wrong about the direction of the stock and still make money. This is because options are a bet on where stocks won’t go, not where they will go. When coupled with implied volatility rank, options provide a high-probability win rate while generating income, mitigating risk and circumventing drastic market moves. Many questions that arose were centered on implied volatility rank (IVR) and how this can be leveraged appropriately when engaging in options trading. IVR is by far the most important and most essential concept to understand when it comes to long-term success in options trading. Here, I’ll discuss how implied volatility and IVR can impact options pricing and provide options traders with a statistical edge over the long-term.
Purpose and Implied Volatility (IV)
The whole idea behind options trading is to sell options and collect premium income in a consistent and high-probability manner. Enabling your portfolio to appreciation steadily month after month without guessing which direction the market will move. The main key for options trading success is leveraging implied volatility and time premium decay to your advantage. Since options premium pricing is largely determined by implied volatility, it’s this implied volatility component when used appropriately that provides options traders with a statistical edge over the long-term.
Implied volatility is the market’s prediction of how volatile the stock will be in the future or the expected volatility of a stock. Implied volatility has many implications and relationships that should be grasped. Continue reading "Implied Volatility Rank - Key To Successful Long-Term Options Trading"