With the VIX so low, it's getting increasingly challenging to find trades.
What we are looking for is stocks with high IVR or a relatively big drop in price on the given day.
Because the volatility is always mean reverting, which means if the volatility is high then eventually it will come back down. If it's low then it will go back up. Higher volatility means higher option prices so it is risky for options traders to sell options when the volatility is low. To put it in a slightly different way: if you sold a put or a call option and you received $1 credit then the option price can easily go up to $2 or higher if the volatility goes up even if there is no movement in the price. This is critical for options traders to understand.
On the flip side, why do I like to trade stocks that just had a big drop in price?
That's simple. They often rebound the following day so if we sell a put when the price is low then we can buy it back when the stock rebounds. This strategy is especially good when we look at the stock and its price by answering a simple question: would I be happy to own the stock at the selected strike level? A perfect example for this currently is INTC. I encourage you to look at it.
So what's my trade for today?
A lot of the pharma companies dropped significantly today due to a litigation risk over a medicine that causes cancer. (Side note: I am anti-medicines for a reason.) So I came across #GSK, a company I never heard of. Its price dropped from $38 to $35 today and it was trading at over $42 a few days ago. It went down to $30 at the peak of the GFC but most of the time it trades over $40. Because I am very bullish on this stock, I sold the November $31/40 strangle and bought a $36 call. The deal cost me $0.41 but if it works out then it could generate $359 profit.