As I have discussed previously on this blog, probabilities and volatility are very important factors when trading options. When you combine the 2, you set yourself up to win. You must look for stocks or etfs with volatility over 50. This covers the volatility part and ensures that you will collect enough option premium. Secondly, you cover the probability part by trading a lot. This is an area where investors struggle. This is because they dont trade enough. You have to trade alot and in different stocks to make the probabilities work out.. Lets go through an example or two..
Ok, first up is Twitter.
As you can see ( the orange line). Volatility was up near 100% and is now dropping. This is a prime canditate for our strategy. Depending on your directional biase, you can sell a call, a put, a credit spread, a , strangle, an iron condor, etc. The good thing about the stock is that its volatility is on the upper side of its range. If the volatility keeps dropping, traders who sell premium in here will be rewarded.
Facebook is another stock that has good volatility at the moment..
As you can see, volatility spiked in the last 2 weeks. Its on the way down again but this is again a prime canditate as it has rich volatility..
Finally, Tesla is another prime canditate for trading..
Again, a burst in volatility has occured. This should revert to the mean so selling volatility in there should be profitable. You need to trade small and trade alot of different stocks. By doing this, you are mitigating risk and putting the odds firmly in your favour. Look for volatility spikes, get in there and sell premium and take profits when you have 20-50% max profit… Rinse, wash, repeat…