The simplified Expected Move formula “Stock Price ✕ (IV / 100) ✕ SquareRoot(N / 365)” allows for traders to easily calculate the market’s expectation for a particular stock to move a certain amount over any number of days....

Short premium positions are most profitable in high IV environments, and we trade IVR > 30 as a rule of thumb to ensure this. However, if IVR becomes skewed, there may still be short premium opportunities when IVR < 30. With all the major index...

Quantifying the overall risk factors of a portfolio becomes more complicated when you begin including options in addition to equities. The Greeks can be used to characterize risk for individual option contracts, as well as the overall risk of...

Using delta as our strike selection allows us to get a fairly accurate representation of the risk we are taking on relative to the premium we collect. Over the years, delta has adjusted for the growth in stock price, changes in volatility, and the...

In a market like last week, where one side of a strangle gets tested extremely quickly, we generally have a set of mechanics to defend the position. We call this “rolling up the untested put” or “rolling down the untested call” depending on...

Skew is where traders perceive the most risk. For example, for equities, the velocity of risk, and therefore skew, is to the downside because when markets drop, they drop much faster than they rise on average. For commodities, the velocity of risk is...

Option pricing models require assumptions about stock price dynamics that are not entirely accurate. For instance, the Black-Scholes model assumes that stock prices follow Geometric Brownian motion, which does not take into account jumps, splits, fat...

Delta measures the probability of an option expiring in the money, but what does this mean for us? Using delta as our strike selection allows us to get a fairly accurate representation of the risk we are taking on relative to the premium we collect....

While event probability is essential to traders, it does not take into account related past events that may be relevant. Conditional probability is a way to estimate the likelihood of an event in the context of known information. Using the conditional...

Delta represents the change in the option value when the underlying moves up by $1. For example, an option with a delta of 50 would move by $0.50 when the stock moves up by $1. Similarly, an option with a delta of -50 would lose $0.50 in value when...