Comments on: Implied Volatility (IV), IV Rank and IV Percentile: Defined and Practical Applications https://www.thebluecollarinvestor.com/implied-volatility-iv-iv-rank-and-iv-percentile-defined-and-practical-applications/ Learn how to invest by selling stock options. Fri, 09 Apr 2021 11:17:32 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/implied-volatility-iv-iv-rank-and-iv-percentile-defined-and-practical-applications/#comment-400322 Fri, 09 Apr 2021 11:17:32 +0000 https://www.thebluecollarinvestor.com/?p=19611#comment-400322 In reply to Donna.

Donna,

I can tell your motivation and due-diligence is paying off. Without giving specific financial advice, let me make some comments you should find useful:

1.You will notice that nearly all parameters set up in the BCI methodology are framed as “guidelines”, not rules (earnings report rule is an exception).

2. This holds true for the mid-contract unwind (MCU) exit strategy and its application in the first half of a contract. I have published articles where I used this strategy as late as the last day of a contract when market conditions are highly volatile.

3. MCU should be considered when we can generate 1% or more than the time-value cost-to-close by expiration in a new trade.

4. My go-to strategy is covered call writing but selling cash-secured puts is an absolutely fabulous strategy as well. I tend to sell puts in more challenging market environments where I sell puts to either generate cash flow or to enter a covered call trade. I am hosting a seminar on this strategy tomorrow and you can register for free here:

https://us02web.zoom.us/webinar/register/WN_MVZT905sTEWzI8x4v5jhxg

5. Delta is not the basis of our strike selection with one special exception I will mention in #6. Our basis is initial time-value return goal range, “moneyness” decisions based on overall market assessment and personal risk-tolerance.

6. I did develop a low-risk put-selling strategy as a result of the COVID crisis in a low interest-rate environment where I use weekly Deltas < 10. I am still using this strategy in one of my smaller portfolios to this day with outstanding success. Here is a link to an article I published on this topic: https://www.thebluecollarinvestor.com/selling-deep-otm-cash-secured-puts-with-exit-strategy-enhancements/

Let me reiterate that with our traditional covered call writing and put-selling strategies, our basis for strike selection is not Delta but rather the parameters I mentioned above.

7. ETFs tend to generate lower returns, but call and put selling returns should be expected to be similar. When we sell OTM covered calls, we also have the opportunity for additional returns from share appreciation up to the OTM strike price.

Keep up the good work.

Alan

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By: Donna https://www.thebluecollarinvestor.com/implied-volatility-iv-iv-rank-and-iv-percentile-defined-and-practical-applications/#comment-400313 Fri, 09 Apr 2021 05:53:45 +0000 https://www.thebluecollarinvestor.com/?p=19611#comment-400313 Dear Alan;

1) I am looking at exiting my XLF April 16 strike 34 cc and instead buying the XLI and selling the April 16 strike 99

I bought the XLF at 33.73 and sold the 34 cc for .65. The price of XLF is now 34.75 and the cost to close the 34 strike is .93 -.79 = .14.

The cost to buy the XLI is 99.40 and the premium for the April 16 99 call is 1.16 -.14 yields a 1% gain with only 8 days left.

The Encyclopedia of CC writing suggests that this kind of strategy should be employed when there are 2 weeks remaining in the contract cycle. Is there some inherent risk i am not considering in my strategy? The XLF is not on the current top performing ETF’s and XLI is.

2) The Encycopedia of CC Writing says that the risk selling puts is not the same as selling Covered calls and does not recommend this to BCI’s. What has chained in your strategy recommendations now? Is it that the put selling is based on lower deltas. But does that not reduce the returns to only 10% per annum?

The last BCI report with only 7 ETF recommendations has me frightened. Do I need to switch my strategy of CC writing to put selling and lower my expectation for returns?

Thank you

Donna

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By: Alan Ellman https://www.thebluecollarinvestor.com/implied-volatility-iv-iv-rank-and-iv-percentile-defined-and-practical-applications/#comment-399756 Wed, 07 Apr 2021 21:01:14 +0000 https://www.thebluecollarinvestor.com/?p=19611#comment-399756 Premium members:

This week’s ETF report has been uploaded to your member site.

You will notice that the number of securities that has out-performed the S&P 500 in 1 and 3-month timeframes is greatly reduced from our typical reports. This reflects an uncertain and narrowing market.

After screening hundreds of ETFs only seven that meet our liquidity requirements have beaten the market in both timeframes. The BCI team found them for you.

For your convenience, here is the link to login to the premium site:

http://www.thebluecollarinvestor.com/member/login.php

NOT A PREMIUM MEMBER? Check out this link:

http://www.thebluecollarinvestor.com/membership.shtml

Alan and the BCI team

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By: Alan Ellman https://www.thebluecollarinvestor.com/implied-volatility-iv-iv-rank-and-iv-percentile-defined-and-practical-applications/#comment-399495 Wed, 07 Apr 2021 11:14:29 +0000 https://www.thebluecollarinvestor.com/?p=19611#comment-399495 Saturday’s free webinar:

9:45 AM ET

The Put-Call-Put Strategy

https://us02web.zoom.us/webinar/register/WN_MVZT905sTEWzI8x4v5jhxg

Alan will do the power point presentation while Barry responds to chat box questions.

Alan & Barry

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By: Alan Ellman https://www.thebluecollarinvestor.com/implied-volatility-iv-iv-rank-and-iv-percentile-defined-and-practical-applications/#comment-399466 Wed, 07 Apr 2021 09:57:58 +0000 https://www.thebluecollarinvestor.com/?p=19611#comment-399466 In reply to Cary.

Cary,

Yes. This creates a guideline as when to close the short call and to then mitigate losses, or turn losses into gains. The 20%/10% guidelines partially automates the exit strategy process.

Alan

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By: Cary https://www.thebluecollarinvestor.com/implied-volatility-iv-iv-rank-and-iv-percentile-defined-and-practical-applications/#comment-399269 Tue, 06 Apr 2021 21:17:48 +0000 https://www.thebluecollarinvestor.com/?p=19611#comment-399269 Alan,

My name is Cary. I’m a subscriber to your Youtube channel. I’ve watched 40-50 hours of your videos. Thank you very much for all you do.

I’ve been trading options for 10 years (mostly call options & credit spreads) When I started, I read 5 books on options & was intrigued with CC’s but never traded them until now when I found you. I just retired & I’m looking to be a little more conservative.

I’m going to join your service by the end of this week & I have a question.

Question-When you initiate your cc trade, am I understanding you correctly that you immediately place a btc order at 20% of the option premium price & adjust it to 10% in the 2nd half of the monthly cycle?

Thank you for your time,

Cary

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By: Alan Ellman https://www.thebluecollarinvestor.com/implied-volatility-iv-iv-rank-and-iv-percentile-defined-and-practical-applications/#comment-398719 Mon, 05 Apr 2021 13:38:08 +0000 https://www.thebluecollarinvestor.com/?p=19611#comment-398719 In reply to Michael.

Michael,

Yes, this can be a bit confusing. The “moneyness” of an option (in-the-money, at-the-money or out-of-the-money) is the same for both buyers and sellers.

Let’s say a stock is trading at $28.00 and the $30.00 out-of-the-money call option has a bid-ask spread of $1.00 – $1.10. The option can be purchased for $1.10 or sold for $1.00. In both cases the $30.00 call option is out-of-the-money.

Alan

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