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Incredibly rich premiums today. Sold strikes as low as 3250 at $1, which, according to my calculations had an IV of 72… I almost thought I mistakenly chose a different expiry date, but no!
Sold 18 Dec. (AM) 3380 for $1.15. Underlying was trading around 3680 and delta of the option contract was about -3.0 and IV of 40.
Guys,
I understand you look at IV of each individual strike instead of underlying/atm strike? Does is the IV help you to choose strike?
Thanks
@john A combination of Delta, premium target (0.75 to 1.00 for M->W or W->F trades) and sometimes % OTM. In Part 4 I go through the rationale for targeting a roughly fixed Delta. ( https://earlyretirementnow.com/2020/06/10/passive-income-through-option-writing-part-4/)
I look primarily at delta (goal 3 to 5) with a weekly premium target of $390 per SPX contract, so M: $145, W: $145, F:$100.
Math: 3705 * 100 * 5.5% ÷ 52 = 390
High IV is good, and I like IV > VIX, since realized volatility usually below predicted (i.e. IV).
* YMMV and would wait for the expert to weigh in!
Premiums were pretty rich this week likely due to the Fed meeting. I expect things will slow down between now and the end of the year.