As a general rule, when implied volatility percentile is low, it’s better to focus on long volatility trades such as debit spreads, long straddles and long strangles.
It also makes sense to compare a stock’s current IV Percentile to the market in general. If all stocks are showing low IV Percentile, then there might not be much of an edge in buying volatility on a specific stock. But, if general market IV percentile is high, that could be a good time to buy cheap volatility in some of the names above.
It’s also a good idea to keep an eye on the upcoming earnings dates as stock can make big moves following earnings announcements.
Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.