Fishing for Trades using Implied Volatility

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1 Dan Sheridan Fishing for Trades using Implied Volatility July 31, 2013 Sheridan Options Mentoring, Inc. Page 1

2 Sponsored by: Disclaimer Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, by calling OPTIONS, or from The Options Clearing Corporation at Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and educational purposes only. In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in this presentation. Such costs will impact the outcome of the stock and options transactions and should be considered. Multiple leg strategies involve multiple commission charges. Parameters relating to past performance of strategies discussed are not capable of being duplicated. Investors should consult their tax advisor as to how taxes affect the outcome of contemplated options transactions. Brokerage firms may require customers to post higher margins than the minimum margins specified in this presentation. Past performance is not indicative of future results. No statement within this presentation should be construed as a recommendation to buy or sell a security or to provide investment advice. Supporting documentation for any claims, statistics, or other technical data in this presentation is available from Sheridan Options Mentoring. The views of third party speakers and their materials are their own and do not necessarily represent the views of Chicago Board Options Exchange, Incorporated (CBOE). CBOE is not affiliated with Sheridan Options Mentoring or OptionNet. This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-cboe product or service described in this presentation. Page 2

3 Fishing for Trades Price Chart Channeling or Trending? Fast or Slow? Implied Volatility Chart Range over last 6 months? Range over last 12 months? Earnings What expiration will likely be affected by earnings? Which expirations will likely not be affected by earnings? Opinion Make price and Volatility assessment based on review of the charts. Page 3

4 Fishing for Trades Pick the appropriate Option Strategy. Bullish and Low Implied Volatility- Buy call, ATM Debit Spread, OTM Call Calendar. Bullish and High Implied Volatility- Sell OTM put, ITM Call Debit Spread, Put Credit Spread, Buy ITM call. Bearish and Low Implied Volatility- Buy Put, Buy ATM Put Debit Spread, Buy OTM Put Calendar, Long Straddles Bearish and High Implied Volatility- Buy ITM Put, Buy ITM Put Debit Spread, Sell Call Credit Spread Page 4

5 Fishing for Trades Neutral and Low Implied Volatility- Calendars and Double Diagonals Neutral and High Implied Volatility- Iron Condors, Credit Spreads, and Butterflies Page 5

6 Example of Fishing for Trades #1 Page 6

7 2 year Implied Volatility Chart Page 7

8 Opinion Price Chart - Uptrend with Speed Implied Volatility - Low levels Historically Prescription: If still Bullish: Slightly OTM Call Calendar. If think SPX can back off a bit because it has been moving up very fast, OTM put debit spread. Page 8

9 Slightly Bullish Call Calendar Page 9

10 Things to look for? Page 10

11 Slightly Bearish Put Calendar Page 11

12 What should I look for? Page 12

13 Dan Sheridan Sheridan Options Mentoring, Inc. Page 13

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