During this selloff, the market has undergone periods of rapid growth and decline at an unprecedented rate. How have short premium strategies performed in these market environments? Today Tom and Tony discuss how profitability has changed during these regimes of rapid market movements.

We can use Implied Volatility and the prices of options to forecast a range of expected movements. Since multiple factors can impact the expected movement range, which one is dominant, underlying price or IV? Tom and Tony discuss and dissect this concept.

Tom and Tony guide us through research-backed reasons as to why pairs trades with very high correlation (0.8 to 1.0) are actually less risky than pairs trades with lower correlations between (0.6 and 0.8).

The Research Team looks at historical market crashes and makes the case that the 2020 market crash followed by the massive rally can be considered a statistical outlier in terms of a sharp reversal after a crash of greater than 30%.

Premium sellers are subject to numerous sources of risk, including potential losses from changes in IV of the underlying.

This is especially of interest now, as IV is still elevated from this recent selloff and prone to large moves.

Today we discuss how to quantify this risk from volatility-sensitivity and how problematic it may be to premium sellers in high IV environments.

Theta and IV have a direct linear relationship, meaning that when one goes up by a certain percentage, the other also goes up by the same percentage. Additionally, the larger the delta of the strangle, the larger the theta of that strangle is. Watch Tom and Tony dive into this relationship with the help of some research driven graphics.

Once a trade is placed, how it is managed can make all the difference in a positive P/L compared to a negative one.

For short premium strategies, we will typically look to manage at 50% or exit out around 21 days until expiration.

But why is this and what are the advantages/ drawdowns of active management?

During this selloff, traders have seen huge movements in the market, but also huge movements in market IV (the VIX). Volatility bounces, or rapid expansions in market IV followed by a rapid contraction, happen in all market environments and long-term phases of the VIX (expansion, contraction, and lull). Today Tom and Tony discuss what constitutes a bounce, and how likely they are to happen depending on the market environment.

We have found that stock indices tend to not react much on earnings days.

So what about 45-day options strategies initiated in earnings season?

Today, Tom and Tony show you the performances of index options around earnings announcements.

Recently, we discussed how many large market moves we’ve had recently. Today, we’re going to discuss point ranges we’ve had during the last 10 years and compare it to the ranges we are seeing in 2020.

Due to starting off at record highs and coming into extreme volatility, 2020 has experienced the largest ranges in history.