When the VIX is low, patience isn’t just a virtue—it’s a survival strategy let me explain this a different way this week so I can help you know why I keep saying it’s time to ligten up on premium selling.
Last week on the cruise, I watched an incredible water show where a performer walked a tightrope high above the crowd. One wrong move, and she’d have gone tumbling. This is exactly what selling premium in low IVR feels like. The margin for error shrinks, every step feels risky. I’ll explain why selling premium in low IVR isn’t just tough—it’s a game with much higher stakes than you think.
Quick Recap on IVR:
Let’s keep it simple. IVR (Implied Volatility Rank) is a way to measure how “amped up” the underlying (stock) is. High IVR means options are pricey, premiums are fat, and you’ve got a more wiggle room. Low IVR? That’s the market equivalent of the morning after Thanksgiving dinner—nobody’s moving much, and it’s hard to get a good deal.
When IVR is low, premiums shrink, and suddenly the trades you were crushing in high IVR don’t look so hot. Why? Because to make the same money, you’ve got to creep closer to the fire. And if you’ve been around long enough, you know what happens when you play too close to the fire—you get burned.
How Low IVR Makes Strike Selection Weird:
This visual should help explain a little differently: In a high-IVR environment, if you want to sell a 20 or 30 delta option it will be more strikes away from at the money! This gives you a little more room if the market moves.
Look at Delta Airlines (I grabbed this screenshot this morning.) The stock is $63 a share, the IVR is 67.8 (fairly high) we are in a low IV environment but this will illustrate my point.
Now lets look at RBLX, IVR is 12. Do you see how in low IVR to sell the same delta options, you are right ATM?
That’s way closer that I want to be. Do you see how the margin for error is much less between DAL and RBLX?
The higher the IVR, the more strikes you have between yourself and the less likely you are to have your option go ITM or risk assignment.
Less Room to Be Wrong = More Stress
Here’s the thing: the closer you are to the ATM price, the easier it is for the market to run you over. Remember, I think of Delta like MPH. So when we sell premium ATM the options can move FAST.
When IVR is high, you’ve got plenty of room to be wrong. Low IVR? Your margin for error shrinks, and every little move feels like a sucker punch.
The Data Doesn’t Lie
If you are thinking Justin, are you sure, Let's refer to some tasty research. Historically, selling premium in high-IVR environments isn’t just more fun—it’s more profitable. When IVR is high, options are overpriced, and you’re betting on that mean-reversion magic where volatility cools off. Low IVR? You’re scraping for crumbs, and the odds aren’t in your favor.
Some Quick Stats:
- When IVR is above 50%, premium sellers win about 85% of the time (thanks, tastytrade, for crunching those numbers).
- Drop below 20% IVR, and the win rate falls below 70%. That’s a big shift, especially when you factor in the bigger losses that tend to show up when trades go wrong.
So yeah, selling premium in low IVR is like running uphill in flip-flops. Sure, you can do it, but why would you?
Patience > FOMO
Here’s the part where I remind you (and myself) to stick to the mechanics. Yes I’m talking about FOMO again… I get it—low IVR is boring. You’re sitting on cash, the market feels calm, and you’re tempted to throw on a trade just to do something. But here’s the deal: chasing trades in low IVR is a one-way ticket to regret-town.
Instead, here’s what I do:
1. Wait It Out: No trades are better than bad trades. High IVR will come back eventually. It always does.
2. Don’t Chase Premiums: If you’re moving your strikes closer to the ATM just to make the math work, you’re doing it wrong.
3. Keep an Eye on the Big Picture: Selling premium is about probabilities, not action. You’re in this game for the long haul.
Think of Low IVR as Your Off-Season
Not every day is a trading day. Low IVR is a great time to:
- Brush up on your strategies.
- Explore other setups (maybe even long-volatility plays, if you’re feeling spicy).
- Keep your powder dry for when the VIX wakes up.
Low IVR tests your discipline. It’s tempting to “just put on a trade,” but every time I’ve forced it in these environments, I’ve regretted it. So now I remind myself: low IVR is like preseason training. It’s not where you win championships, but it’s where you set yourself up for success.
Respect the Market, Respect Yourself
The market doesn’t care about your feelings. When IVR is low, the edge just isn’t there for premium sellers. That’s not a failure—it’s just the game. So stick to other strategies, follow the mechanics, wait for high IVR to sell puts. Don’t let low premiums tempt you into bad decisions.
And if all else fails? Close your trading platform, grab a coffee, and remember: the market will still be here tomorrow.
Speaking of coffee I hope to see you (virtually) for GKT’s virtual coffee hour on Dec 18th 9am.
Normally this is only for M$M inner circle members but I want to open it up for all the good kids. I know it’s the holidays and everyone is busy, but if you have a second drop in and say hi!.
Until this weekends blog, Happy Trading Good Kids!
-$Maxwell
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