What if you could avoid getting assigned the stock 99.7% percent of the time?
OR using the same approach have 99.7% chance of being paid a premium AND getting to add your favourite stock to your portfolio?
Using Implied volatility as your guide, you can increase your chances of keeping the premium and NOT getting assigned the stock.
This can increase your premium profits and your ability to rotate capital to substantially increase your returns.
Understanding Advanced strategies like Volatility and concepts such as standard deviation, taught in a very understandable manner, will help you do just that.
Here’s how it works:
Let's take an example of MSFT with an implied volatility (IV) of 41.7%
This number represents a prediction of the annual volatility, or how much the stock price is likely to swing in either direction over the course of a year.
What does 41.7% annual mean if you want to trade MSFT for a week or a month?
If we take that annual IV and break it down to a weekly IV of how MSFT stock price can swing in the next 7 days we get the following:
41.7% divided by 7.2= 5.79%
This means that over the next week MSFT stock price is likely to move within a 5.79% range up or down 68% of the time. What if you are more comfortable with a higher likelihood? Like 95% Or even 99.7%? We can do that too!
So knowing this, we can choose exact strike prices to put the odds almost entirely in our favour.