What's your process for finding the best short vol opportunities?
Genuinely curious how advanced traders here scan for opportunities. Do you manually check each ticker? Use a screener? Have a watchlist? I've been trying to systematize my process and would love to hear different approaches.
Posted by Sebastian_28saas
4 Comments
I am not one of those traders who checks each ticker. That would just lead to burnout very quickly. Instead, I begin with a select few tickers that reliably offer liquidity in their options contracts and high levels of IV. The majority of my trading opportunities come from earnings week and event-heavy weeks. Next, I will focus on finding stocks where the IV seems inflated compared to how much movement is required. Whenever the implied move is significantly larger than the typical move seen in the stock, then that is when I take interest. Eventually, it comes down to knowing a select few stocks inside and out and waiting for them to get “mispriced” temporarily.
I usually start with screeners + unusual volume alerts, then narrow down by liquidity and earnings/news catalysts. Watching IV rank alone gives too many false setups.
I mostly screen for high IV rank + liquid options first, then manually review the setups. Biggest thing I learned is not every “high IV” stock is actually a good short vol trade. I’d rather know a smaller watchlist really well than scan 500 random tickers every day.
IV rank above 50 filtered by earnings date is the starting point. Then check historical move vs implied move, if implied consistently overshoots actual the setup is worth looking at.