Vega Risk & Bid/Ask Spread When Purchasing Married Puts

The type of stocks we screen for following the rules in The Blueprint are typically not high volatility, high risk stocks. If the protective put option that we purchase had too high of an implied volatility (where Vega would be a concern) the ‘at-risk’ amount for the initial Married Put would be above 10% or so. Since we only look for married put positions that have an at-risk amount between 4 – 9%, we typically don’t see put options with high IV match our criteria and appear in the screening process. Also, because we only buy put options that are at least 150 days out in time, the IV is typically lower as the far out options are not as affected by near term fluctuations in the market.

That being said, in addition to the default RadioActive Trading criteria that we have on the PowerOptions Married Put Search, investors can chose to screen for a specific ‘% Implied Volatility Range’. This shows where the options IV is now compared to where it has been over the life of the option. If I wanted to only look for put options where the IV is in the lower 50% of it’s total range, I could enter a filter for ‘% Implied Volatility Range’ ___ to 50 (less than 50).

In addition to that, we also offer a filter for Bid/Ask spread. If you wanted to avoid positions that had a wide Bid/Ask spread you can use that filter to only see put options that have a spread less than $1.00 or perhaps less than $0.50. When RadioActive Traders open the initial position we typically always get filled at or near the mid-point.

While a wide Bid/Ask spread can be a concern, but options that typically have a wide Bid/Ask spread either have little to no trading activity or high implied volatility. These are all criteria that we can filter out when running our search for new position opportunities.

Finally, you can view a basic track record of the FUSION trades and the Ernie@Poweropt┬áportfolios directly on the website. Simply go to http://www.radioactivetrading.com/ and click ‘Track Records‘. Complete trade details including fill prices and trading notes are available to FUSION subscribers.

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