Identify options with high IV that could be a premium selling opportunity
In high IV environments, many traders use options selling strategies such as credit spreads, naked puts, short straddles/strangles and covered calls. These strategies can potentially improve your breakeven points compared to selling premium in low IV environments.
High implied volatility example
Let’s compare selling a put at the 95 strike in high and low IV environments with XYZ stock trading at $100.
High IV: the put might be worth $7, offering a maximum profit of $700 if it expires out of the money (OTM). If it goes in the money, the $7 premium reduces your breakeven to $88.
Low IV: the same put might only be worth $3.50, halving both your maximum profit and breakeven reduction.
This example illustrates how high IV can significantly impact trade entry prices and strike price proximity.
