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Tag Archives: historical volatility
implied volatil;ity and standard deviation

Probability Analysis when Using Covered Call Writing or Selling Cash-Secured Puts

Whether we are selling covered calls or cash-secured puts we frequently look to our broker platforms for ways of enhancing our trading success. As these platforms become more sophisticated and competitive, there are a myriad of software analytical programs offered including those geared to probability analysis. A typical program will use implied volatility stats to determine […]

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volatility and covered call writing

Comparing Implied Volatility and Historical Volatility During Earnings Season

When selecting stocks and options for covered call writing and put-selling we factor in volatility, both implied and historical. Historical Volatility (HV) is the actual volatility of a security over a given time period. HV is calculated by determining the average deviation from the average price based on one standard deviation (expected to be accurate 67% of the time).  Implied volatility (IV) is […]

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volatility and covered call writing

A Review of Volatility and its Impact on Option-Selling

When we write covered calls or cash-secured puts, we are selling volatility. The time value component of a short-term option premium reflects the amount of time until expiration plus the volatility of the underlying security. Since most of us are comparing options with similar expirations, the volatility of the stock or exchange-traded fund represents the […]

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volatility and option-selling

Using Volatility to Predict Future Stock Prices

Volatility is a key consideration for both stock selection and option-selling decisions. Despite its relevance to our covered call writing and put-selling selections, volatility does have its limitations and we must fully understand how we can best take advantage of the information gleaned from volatility statistics.   Types of volatility Historical volatility: The annualized standard […]

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The Greeks and covered call writing

How To Use Implied Volatility In Our Covered Call Writing Decisions

Understanding the Greeks, or factors that impact the value of our covered call premiums, is essential to mastering options trading basics and becoming an elite covered call writer. One of the Greeks (although not truly a Greek letter) is Vega, the amount an option price will change for every 1% change in volatility. As the […]

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implied volatility and option selling

Implied Volatility: More Important Than Historical Volatility To Covered Call Writers And Put-Sellers

Understanding the concept of implied volatility is essential for successful covered call writing and selling puts. First, implied volatility gives us a window into the “market’s” perception of future price movement. It will also allow us to calculate probability of a stock price reaching a certain level. Like all other parameters, implied volatility, although quite […]

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Implied volatility differences between strikes and expirations

Vega: An Option Greek And How It Impacts Our Option Pemiums

Covered call writing generates monthly cash flow by selling short-term options. The main factor in determining the amount of this premium is the implied volatility (IV) of the underlying security. The effect that IV has on the premium is known as vega, one of the option Greeks. What is vega? Vega is the expected change in […]

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Implied volatility over different strikes

Volatility Skew- Understanding Option Premiums Over Different Time Frames and Strikes

In covered call writing, our option premiums are influenced by the volatility of the underlying security. Using the Black Scholes option pricing model, we can calculate the volatility of the underlying by entering the market prices for the options. Common sense would seem to dictate that for options with the same expiration date, we expect the implied volatility […]

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Implied Volatility and Our Covered Call Writing Premiums

What makes some stock option premiums worth so much more than others? Let’s say we have two stocks, A and B. Both are trading @ $25/share. We look to sell the same month at-the-money $25 strike and one (stock A) returns 2% and the other (stock B) 4%. WHY? The answer lies predominantly in the mysterious […]

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Covered Call Writing: Factors That Affect The Value Of Our Option Premiums

So you sold an options contract for $380 and generated a 3.5% 1-month return. Did you ever wonder how the market determined the value of that options contract to be $380? The simple equation that most of us know and understand is the following:  Option premium = Intrinsic Value + Time Value To review, let […]

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