I haven't done one of these in a while ... . Here's how this works (basically). I price out the at-the-money short straddle in the expiry nearest 45 days. I'm generally not going to do a short straddle as a setup, but it helps me rank underlyings by what they're paying in risk premium as a function of strike price to help me utilize what I've got in the most efficient way possible.
In the vast majority of cases, this will line up with a screener that just ranks underlyings by 30-day IV (i.e., an underlying having a higher 30-day will beat out one with a lower 30-day), but I also want to get an objective idea in dollar and cents terms as to what a given underlying is paying and see, over time, what is "worth it" and what is not (e.g., is 5.0% ROC as a function of strike price "too little" to be worth it).
This also helps me to evaluate whether IVR or percentile is somewhat misleading, usually due to an oversized volatility spike in the past-52 weeks or, conversely, extremely low volatility over the past 52 weeks. It's usually the former, but there have been lengthy periods of extremely low IV where a "pop" can occur that pushes IVR to 100, but is still an IV too low to be worthwhile from a dollar and cents/ROC %-age standpoint.
And although I'm pricing out short strangles and straddles here, the approach is basically the same with defined risk (iron condors, iron flies): (1) Price out short straddles; (2) Rank them by ROC %-age as a function of buying power effect; (3) Then price out an iron condor/iron fly setup.
Broad Market:
QQQ: August 26th 292 short straddle paying 23.06, 7.9% as a function of strike price.
IWM: August 26th 173 short straddle, paying 12.93, 7.5% as a function of strike price.
SPY: August 26th 385 short straddle, paying 23.91, 6.2% as a function of strike price.
This shows me that QQQ is the "buck banger" amongst the broad market exchange-traded funds, after which I price out preliminary setups at preliminary strikes (since price may move between now and NY open, at which point I'll have to adjust my strikes).
QQQ August 26th 353/412 is paying 5.25 at the mid price on a buying power effect of 50.17, 10.5% as a function of buying power effect.
Exchange-Traded Funds
UNG: August 26th 24 short straddle, paying 5.92, 24.7% as a function of strike price.
BITO: August 26th 13 short straddle, paying 2.72, 20.9% as a function of strike price.
ARKK: August 26th 44 short straddle, paying 7.73, 17.6% as a function of strike price.
KWEB: August 26th 29 short straddle, paying 4.59, 15.8% as a function of strike price.
XOP: August 26th 116 short straddle, paying 16.11, 13.9% as a function of strike price.
GDXJ: August 26th 30 short straddle, paying 4.12, 13.7% as a function of strike price.
USO: August 26th 73.5 short straddle, paying 9.68, 13.2% as a function of strike price.
XBI: August 26th 82.5 short straddle, paying 10.63, 12.9% as a function of strike price.
XME: August 26th 43 short straddle, paying 5.43, 12.6% as a function of strike price.
JETS: August 26th 17 short straddle, paying 2.09, 12.3% as a function of strike price.
Here, there are actually underlyings that I could contemplate going short straddle on: UNG, BITO, and JETS. This is because a short strangle probably isn't going to pay enough for me to make it worthwhile, since I want to generally take profit at 50% max on short strangles; 25% max on short straddles, with 1.00 credit kind of minimum credit received for a short strangle and 2.00 in short straddles. 50% of 1.00, after all, is .50 ($50), as is 25% of a 2.00 short straddle.
There are also a couple of additional considerations here, one of which is that not every one of these has liquid weeklies, so I may have to either go to September (61 days) or just wait until the September duration to shorten a bit. Alternatively, I can consider putting a smidge of September on here, reexamining what's paying next week, put a little more on, etc. Point in fact, this is how I generally like to do things, reserving the broad market ETF's for the weeklies (IWM, QQQ, and SPY are all pretty liquid in those), and leaving other ETF's for the monthlies.
Consequently, I could consider doing the UNG and BITO short straddles as September setups, with the UNG September 16th 24 short straddle paying 7.30 on buying power effect of 14.57, 50.1% ROC as a function of buying power effect (on margin) and the BITO September 16th 13 short straddle paying 3.32 on buying power effect of 13.12 (on margin), 25.3% ROC as function of buying power effect. Neither really ties up a humungous amount of buying power. As a potential 3rd candidate (if I don't want to play natty or -- basically -- crypto) would be the ARKK September 16th 34/57, 2.09 on buying power effect of 4.43 (on margin), 47.2% ROC as a function of buying power effect. Looked at from the ROC%-age perspective, UNG is the "sexiest" premium selling play, followed by ARKK, followed by BITO.
Now, go out and bang your bucks ... .
In the vast majority of cases, this will line up with a screener that just ranks underlyings by 30-day IV (i.e., an underlying having a higher 30-day will beat out one with a lower 30-day), but I also want to get an objective idea in dollar and cents terms as to what a given underlying is paying and see, over time, what is "worth it" and what is not (e.g., is 5.0% ROC as a function of strike price "too little" to be worth it).
This also helps me to evaluate whether IVR or percentile is somewhat misleading, usually due to an oversized volatility spike in the past-52 weeks or, conversely, extremely low volatility over the past 52 weeks. It's usually the former, but there have been lengthy periods of extremely low IV where a "pop" can occur that pushes IVR to 100, but is still an IV too low to be worthwhile from a dollar and cents/ROC %-age standpoint.
And although I'm pricing out short strangles and straddles here, the approach is basically the same with defined risk (iron condors, iron flies): (1) Price out short straddles; (2) Rank them by ROC %-age as a function of buying power effect; (3) Then price out an iron condor/iron fly setup.
Broad Market:
QQQ: August 26th 292 short straddle paying 23.06, 7.9% as a function of strike price.
IWM: August 26th 173 short straddle, paying 12.93, 7.5% as a function of strike price.
SPY: August 26th 385 short straddle, paying 23.91, 6.2% as a function of strike price.
This shows me that QQQ is the "buck banger" amongst the broad market exchange-traded funds, after which I price out preliminary setups at preliminary strikes (since price may move between now and NY open, at which point I'll have to adjust my strikes).
QQQ August 26th 353/412 is paying 5.25 at the mid price on a buying power effect of 50.17, 10.5% as a function of buying power effect.
Exchange-Traded Funds
UNG: August 26th 24 short straddle, paying 5.92, 24.7% as a function of strike price.
BITO: August 26th 13 short straddle, paying 2.72, 20.9% as a function of strike price.
ARKK: August 26th 44 short straddle, paying 7.73, 17.6% as a function of strike price.
KWEB: August 26th 29 short straddle, paying 4.59, 15.8% as a function of strike price.
XOP: August 26th 116 short straddle, paying 16.11, 13.9% as a function of strike price.
GDXJ: August 26th 30 short straddle, paying 4.12, 13.7% as a function of strike price.
USO: August 26th 73.5 short straddle, paying 9.68, 13.2% as a function of strike price.
XBI: August 26th 82.5 short straddle, paying 10.63, 12.9% as a function of strike price.
XME: August 26th 43 short straddle, paying 5.43, 12.6% as a function of strike price.
JETS: August 26th 17 short straddle, paying 2.09, 12.3% as a function of strike price.
Here, there are actually underlyings that I could contemplate going short straddle on: UNG, BITO, and JETS. This is because a short strangle probably isn't going to pay enough for me to make it worthwhile, since I want to generally take profit at 50% max on short strangles; 25% max on short straddles, with 1.00 credit kind of minimum credit received for a short strangle and 2.00 in short straddles. 50% of 1.00, after all, is .50 ($50), as is 25% of a 2.00 short straddle.
There are also a couple of additional considerations here, one of which is that not every one of these has liquid weeklies, so I may have to either go to September (61 days) or just wait until the September duration to shorten a bit. Alternatively, I can consider putting a smidge of September on here, reexamining what's paying next week, put a little more on, etc. Point in fact, this is how I generally like to do things, reserving the broad market ETF's for the weeklies (IWM, QQQ, and SPY are all pretty liquid in those), and leaving other ETF's for the monthlies.
Consequently, I could consider doing the UNG and BITO short straddles as September setups, with the UNG September 16th 24 short straddle paying 7.30 on buying power effect of 14.57, 50.1% ROC as a function of buying power effect (on margin) and the BITO September 16th 13 short straddle paying 3.32 on buying power effect of 13.12 (on margin), 25.3% ROC as function of buying power effect. Neither really ties up a humungous amount of buying power. As a potential 3rd candidate (if I don't want to play natty or -- basically -- crypto) would be the ARKK September 16th 34/57, 2.09 on buying power effect of 4.43 (on margin), 47.2% ROC as a function of buying power effect. Looked at from the ROC%-age perspective, UNG is the "sexiest" premium selling play, followed by ARKK, followed by BITO.
Now, go out and bang your bucks ... .