Trading Falling Implied Volatility
18 strategies
Selling a call at a given strike and buying a call at a higher strike. Strategy that benefits from a decline in implied volatility as sold options lose value faster than purchased ones.
Buying a put at a given strike and selling a put at a lower strike. Strategy that profits from a decline in implied volatility as sold options lose value faster than purchased ones.
Selling a put with cash as collateral. Profits from a decline in implied volatility which reduces the value of the sold put, allowing for cheaper buyback or profitable worthless expiration.
Holding shares while selling calls. Benefits from a decline in implied volatility which lowers the value of the sold call, allowing for advantageous buyback or premium retention upon worthless expiration.
Holding shares with simultaneous sale of an OTM call and put. Double benefit from declining implied volatility on both sold options, ideal when anticipating market calm.
Buying a put and selling a call at different strikes. Strategy that protects against excessive price decline while limiting potential gains.
Complex four-legged structure that profits from declining implied volatility when price remains in a tight range. Volatility compression improves profit profile.
Bearish version of the condor that also benefits from declining implied volatility with price in defined range. Range trading strategy with decreasing volatility.
Selling a call without coverage. Strongly profits from declining implied volatility which rapidly erodes the value of the sold call. Aggressive position requiring experience and strict risk management.
Selling a put without coverage. Benefits from declining implied volatility which reduces the sold put premium. Excellent for capitalizing on volatility normalization after fear spikes.
Selling a long-term call and buying a short-term call at the same strike. Profits from declining implied volatility which impacts the sold longer-dated option more significantly.
Combination of bull put spread and bear call spread. Iconic strategy that massively profits from declining implied volatility, ideal for calm and predictable environments.
Selling an ATM straddle protected by a long strangle. Strongly benefits from implied volatility contraction on the sold ATM options which are most sensitive to volatility.
Selling multiple calls against fewer calls bought at higher strike. Amplified gains through declining implied volatility on multiple sold options in stable environment.
Selling multiple puts against fewer puts bought at lower strike. Profits from implied volatility compression on multiple short positions with limited protection.
Simultaneous sale of a call and put at the same ATM strike. Pure volatility selling strategy that massively profits from declining implied volatility and directionless market.
Selling an OTM call and put at different strikes. Less risky than short straddle, excellently profits from declining implied volatility with high probability of success.
Buying ATM calls and selling OTM calls in a 2:1 ratio on losing position. Although cost-neutral, indirectly benefits from declining volatility which stabilizes recovery conditions.