Relatively Speaking

In recent weeks, I’ve gotten several questions from subscribers to our Paid-to-Play income generating strategy wondering about discrepancies in my ETF implied volatility values vs. what they may have seen from whatever data source they personally use.

In many cases, what people see in my recorded videos simply represents a snapshot of when the video was recorded. Implied volatility values for options are dynamically updating throughout the day as stocks and options prices change. They are constantly in motion.

The other more common issue is that different platforms use different (often proprietary) calculations in their version of options implied volatility.

This may be frustrating for anyone who is looking for specific values in order to cue trades to happen. Thankfully, I am not.

I preach this all the time – I’m not at all concerned about the actual volatility score of an instrument. I don’t care how it’s measured. I only care about relative values.

In the case of measuring whether volatility is “high” or “low” for a particular instrument, I’m only focused on where the volatility in the instrument is today, compared to where it’s been over the past 6-12 months – in whichever method is used to calculate the actual value. This is a practice of being present in the now.

In the case of selecting a high-volatility instrument to initiate a delta-neutral credit spread, I like to choose one with higher volatility than its peers. Again, I don’t care about the actual value. I only care about whether it’s higher or lower than its friends. Easy peasy.

If you get trade ideas from me and you see a different IV score than what I’m seeing, don’t overthink it. Think instead in relative terms.

Trade 'em Well,

Sean McLaughlin
Chief Options Strategist
All Star Charts, Technical Analysis Research