Warning: IV Rank Hits Rock Bottom
Single digits on $AAPL, $NVDA, $TSLA
These last few days of the year, it looks like we’ll be at rock bottom for IV Rank. With levels in the low single digits for stocks like AAPL, NVDA, TSLA, and QQQ, this is a terrible time to be aggressively selling options. The premium you collect simply won't compensate you for the risk you're taking on. Hold off on selling strategies until volatility expands and you can actually get paid fairly for the risk.
Since selling options is unattractive right now, here are some better strategies for this low IV environment:
Buy options instead of selling them
When IV is cheap, it’s actually a good time to be a net buyer. Consider buying calls or puts if you have a directional view, since you’re getting them at a discount.If you still must sell options:
Make it a day trade - IV rank won't move much intraday, so you can capture quick premium without the overnight risk of an IV expansion.
Look to sell options that have statistical low probability of being challenged regardless of IV environment.
Diagonal spreads
Buy longer-dated options and sell shorter-dated ones against them. This lets you take advantage of time decay on the short leg while maintaining upside exposure through the long leg.For example, if you think TSLA is going to hit 500 in early January, you can sell the 500 call for Jan 2, and buy the 500 call for Jan 9. This automatically gives you a 50% discount on the Jan 9 call, and if volatility expands, the Jan 9 call will benefit more.
Best case scenario, TSLA drifts to 500 and your Jan 2 calls expire worthless and your Jan 9 calls double.
Or for example, if you think TSLA is going to hit 450 in early January, you can sell the 450 put for Jan 2, and buy the 450 put for Jan 9. This one automatically gives you a 40% discount on the Jan 9 put, and if volatility expands, the Jan 9 put will benefit more.
Best case scenario, TSLA drifts to 450 and your Jan 2 puts expire worthless and your Jan 9 puts triple.
Who Is This Warning For?
Keep in mind, at CI Volatility, we don't take directional bets on markets or stocks. We focus on warehousing mispriced options that either create convexity in our portfolios or have low statistical chance of being challenged. But we know many traders love directional plays so this warning is for you.