How to analyze Volatility to find Options Opportunities

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Foreign.

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Welcome back to the second session this week with Ryan. Very excited to have you back, Ryan. I think the session we did on Tuesday was awesome. If you guys missed it, you can find it on our YouTube live channel. And basically the goal today is really to go and continue from what we did on Tuesday. How can we use QUEEN to potentially find information, research data and potentially structure trades, especially looking at volatility and option. So welcome back, Ryan. Good to have you.

[00:01:13.13] - Speaker 1
Thank you. Good to be back again. It's a very exciting week. For those who haven't been on previous calls, Quinn's rollout and big upgrades have been a huge kind of event for the product and for the, you know, the community. I would say today we're gonna walk through our traditional volatility corner, but a lot more focused on the ways that you can really put your research on steroids. You can really, you know, turbo boost your, your research here. So I'm going to show you today how we would, how we can use Quinn and use some of these great AI tools to just accelerate everything that we've been doing for those of our regular followers. And I also want to call out that there's some real market opportunities right now. Whereas a lot of the previous months were pretty quiet, we didn't have a lot to do. We were talking more about kind of strategies to protect yourself and things like that. Now we've got some real opportunity. So to start with, I'm just going to jump into really quickly kind of our basic overview that we always look at. We kind of check spx, qqq, glt just to get a quick overview of the market, you know, for those who are regular listeners.

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You know, I've been telling you guys for a long time, be careful with this, with, you know, general volatility levels in the market. If you're a vault seller, back up a little, reduce your risk. Well, we can finally say that it's time to jump in, you know. So if you had, if you were waiting on the sidelines to sell options or if you had de risked a little bit, really like selling optionality right now across the entire market. But you know, using SPX as the, as the kind of bellwether for the market, you can see just how much volume has jumped up. You know, I've consistently said on this, on this stream that, you know, anytime you get involved in these kind of 10, 11, 12, 13% ranges on SPX, it doesn't always mean you'll make money right away. But being long volatility, you got a Real good chance to make money or at least lose very little while you bet on a big options play. If you were long S and P puts, you've almost certainly made quite a bit of money. But now I think that's flipped. Now we look at implied volatility for SPX and we see this big jump into 20% plus territory.

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And we're gonna use Quinn to understand a little bit better how that fits into the context of where we've been and what's going on. So first things first, let's jump down to our VRP cross asset VRP that I always like and just take a look and see. So, you know, I'm saying it's a good time to sell volatility. Well, let's take a look at this right here. You can see just how appealing volatility risk premium is right now for spx. So you got a nice big volatility risk premium, meaning it's trading at a big implied volatility is much higher than the actual realized volatility we're getting. And quick reminder, quick caveat. I've always told folks, you know, be careful when you ask, when you look at just the high vrp, sometimes that's because we're expecting a lot to happen soon, or it's because, you know, implied, you know, because let's say implied volatility is really low. So implied volatility is really low and realized volume's even lower. So it is telling you to sell implied volatility, sell options, but you're running a lot of risk because you're selling it, but there's not a lot of risk for reward and it's probably not going to persist with such low realized volatility.

[00:05:03.27] - Speaker 1
Well, now that problem is taken care of. We've got, you know, very high volatility risk premium for spx. And we've got, you know, as we showed over here, and we've got absolute high volatility in, you know, in the term structure here. So we're actually seeing high levels of volatility. So when you put that together tells me now's the time, you know, strike while the iron's hot. If you've been waiting to sell off options or waiting to scale up your option selling, I'd really take advantage of this, of course. Yes, there's a lot of turmoil right now going on in the, you know, in the Middle east, and I don't expect that to get better anytime soon. But at the end of the day, you know, the market's going to have to Realize a lot of volatility to keep up with this, you know, historically high. So now let's look at how we can use Quinn for that. So for those of you, of you who aren't familiar, there's, you know, a couple of really powerful tools. And long term, some of those really powerful tools are these screeners that you can actually save so you can build your own screen and then you can look for, you know, and you can look for these exact things.

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So, you know, some of the things that, that we always talk about on this call, can I get stocks that have, you know, high VRP and have elevated implied volume? So that's exactly what we were kind of just describing for spx. And now we can jump in and see all those stocks that fit that filter. And if you want to see a few more details about that filter, we can just hover over here and see exactly how this was created. So this one's using VRP greater than 10% and, you know, volatility rank above the 60th percentile. So, you know, this is a great opportunity here. SPX isn't showing up here right now because I think the absolute volatility risk premium's not there. So one of the things we're still working on is figuring out how to filter. One of the things I'm still working on is figuring out how to get these just right to where they have the right sensitivity, how to really tweak these, you know, how to tweak these screens so that they'll show a little bit broader universe. But, you know, this is exactly what we want to look for. You know, we saw that for spx.

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And you can see there's a bunch of stocks that are actually falling into, you know, into play in this category. So if, you know, I like to start with a broad approach and then kind of drill down after that. And so you start by looking at spx and then you say, all right, so now I want to sell volatility. So I might go looking for some single stocks that fit under that, under that category of high VIP and high implied volatility. Now I'll show you real quick how I created this screen. You just go right in here. It's really handy, really convenient. You can say, let's see, all stocks with, you know, positive VRP. And implied volatility. Of the 50th percentile, specify. I'm not sure if we need to specify stocks and ETFs. And you click the blue button and away you go. And, and this is again, really, really powerful because, you know, I was, I, we talked about this a little bit Tuesday and I'll emphasize this again whenever I show you these single charts on here, right? Whenever we look at volatility, the term structure, whenever we look at the SKU or the smile, whenever we look at the vrp, you know, one of the things that we're always asking ourselves is how do they fit in together?

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You know, how, how do they play off one another? How is actual realized volatility versus, you know, how is actual, how high is implied volatility? Well, the great thing about COIN is we can really quickly aggregate all of that into, you know, a single, you know, a single set of questions and turn that into a screen. So you can also start to overlay your own strategies in here. So if you like the general approach that we take in volatility corner, but you say, okay, well I want to also make sure that, you know, I've considered a few other things, then you can, you can do that. So here's an example of what we just talked about. So we're finding ones with positive VRPs and additionally we are looking at those that have a high IV rank. We can, you know, potentially narrow this down even a little bit more. So maybe we say show me because maybe we're looking to figure out a tradable opportunity off of that. So you know, let's say the next step is we want to know if we should be selling kind of calls or puts for these high volume stocks.

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So the first thing I would look at is, you know, how close is it to call resistance or put, or kind of put support. So.

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It's really hard to understate or overstate rather, you know, just how, how powerful this is right now. So you can see here just, just a quick ask to expand the list of tickers available and we can see a lot more names here that potentially come into play. We should have SPX in here hopefully. Yeah, I mean we've got, you know, just, just great data in here. So you know, now we can see exactly what we're looking for. So if we find something that's bumping up against call resistance, maybe we want to look to sell calls on that or if it's near put support, maybe we want to look and sell puts. So for example here, you know, let's find one. We looked at this one on Tuesday, CYTK, you know, great example, 80th percentile for its implied volatility, huge volatility risk premium. And you know, you've got put Support right here at 60. So then we can go dig in a little deeper into CYTK and you know, just check out the volatility term structure here. And when we do that, you know, we see this pretty remarkable term structure. Now anyone who's a regular watcher of the volatility corner or listener to the volatility corner knows that we talk about how much the term structure can tell us about what's going on in the real world.

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Even knowing nothing about a stock, I look at a stock like this and say to myself, well, there's an event coming up. And sure enough, when we look this up on Tuesday, we found that CYTK has earnings coming up, which is exactly what we'd expect. Typically. That's what. So it turns out it's in May or April 30 here. Looks like, or actually they're going to release it in early May. So then when we come down, so when we come down here though, we notice that we've got some time though this isn't going to, this isn't going to come out until somewhere around here. But we've still got this really elevated volatility leading into it. So there's a little bit of a trade opportunity there. We can look to sell. You know, in this case it would suggest put selling puts around, put support. Looks like there's some nervousness. You know, cytk's falling quite a bit. It's entirely possible that that's because of, you know, just the general market sell off could also be nervousness ahead of, ahead of those earnings coming out in a month. So we could look to be selling options right ahead of those earnings.

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We'd have put support in our favor and we'd also, you know, get this really high implied volatility we're picking up and we're talking about 100 implied volatility. Now again, you know, a reminder, I don't follow these individual stocks. And so in an ideal world, you would always have a fundamental view on a stock. And then when you find out that, that these screeners and these kind of implied volatility markets are telling you something that aligns with your view. So if you told me, hey, I know Cytk, you know, I've been, I've thought about buying that stock. I like the name. It's got kind of a good news, good news cycle and for all those reasons I want to buy it, then suddenly the heavens have aligned right now, you see, great. Well, volatility is very expensive. So you can sell puts and Then you get a long exposure to the stock and if the market sells off, you'll get put into the stock. And if you're okay with that, you know, then that's a great trade. So when you can get all those things to line up, it's just unbelievably powerful. And so like I, you know, said at the beginning of this call, Quinn has just been, you know, such a big boost because now we can really rapidly combine a bunch of factors, right?

[00:14:58.15] - Speaker 1
So in just a hop, skip and a jump, just typing on here, we were able to kind of identify a stock with, you know, that's close to call resistance and put support, high implied volatility and a nice big vrp. Then we're able to quickly jump in, validate all that data. Of course, you know, Quinn's pretty powerful product is pretty great because it's much lower hallucination risk because it's trained specifically on Mendor Q data, which means that you have way less risk of it kind of making up numbers and prices to back things up if versus say like a chat GPT or CLAUDE that you were using more generally. So you've got some, you know, much more focused data that's trained on this proprietary data set. So you got a little bit less hallucination risk or a lot less hallucination risk. But at the end of the day, still, still a large language model, you still need to double check everything. So you want to come in and do your homework before you do a trade. You want to check for events like we just did, confirmed that we want to be making sure to focus our ball sales prior to earnings.

[00:16:07.12] - Speaker 1
You know, we want to make sure to check some of our other favorites. You know, we can go look at the swing model and see how we're, how we're doing with put support. You know, how we're trading. Big sell off kind of. With the broader market. Has some. We start to refresh this screen and see what's going on. We just, when we refresh Quinn, we come in here, click that and expand it and see everything we need. We can all jump in here and start a chat, you know, so we can basically say cytk.

[00:17:56.20] - Speaker 1
So I love this because we get to learn in real time together. You know, that's great. And quick reminder, if you have questions that pop up, please feel free to throw them in the chat and I'll try to get, and I'll try to get to them today. And if we can't, you can always send those to info at Mentor Q And we'll address those. So. But now you also have this added tool. You don't just have to ask me, you can ask Quinn. So, you know, take a look here. We can see all this detail. It comes up right away about it. So options trading attractiveness, saying, okay, yeah, this is well supported, the view that you're saying we've got volatility profile, BRP dynamics. We just talked about those. Oh, glad to hear that. Thank you. Woodworth dealer positioning gamma regime. So dealers are currently long gamma hedging with buying dips and selling rallies. This stabilizing behavior creates a mean reverting environment where dealer hedging flows dampen directional moves. And that's because we're just above put support. So this, you know, just. Again, this is really great because for folks who are still getting into this, this is a little bit new for you.

[00:19:14.05] - Speaker 1
You can really go in here and push it. We tested it on Tuesday. We stressed it pretty hard. I joked that Fabio was, you know, probably sweating a little bit because of what we were, you know, I was asking it all sorts of questions. And so far it's consistently stepped in and matched more or less exactly what I would say. And so, you know, this is a great example. Again, you know, it's saying, yes, that's right. You see, implied volatility is, is high. The premium is high, the IV rank is high. We've got put support here, which should dampen, you know, gamma moves as dealers hedge. And that pins it in a tight space. And then we can go in here and, and see. So, okay, option score. That's not giving us a really strong view saying relatively neutral. So we can, you know, justify puts or calls. But we've got a momentum score of. Momentum score of weak, bullish. So it's not great, but it suggests to us. So that's even more reason that, you know, maybe selling puts here makes more sense than outright buying the stock. Especially if you're nervous heading into this and you think, well, you know, I'd be interested to own this stock, but I'd rather sell a lower price put earn some volatility premium today.

[00:20:26.04] - Speaker 1
And if something comes up and it gets a lot cheaper, then I'll own the stock at a lower level. So I think, you know, again, this is, this is really nice. You can continue to get through here. You can get latest news and see how the stock's doing and learn more. Get a tactical seller summary. Here you go. So for option sellers, attractive premium selling environment, but it suggests defined risk management around the $50 support level. You know, this just makes me so happy. You can't see my face right now having some video issues. But you know, I have a bit, I have a smile from ear to ear because everybody who, who listens to Volatility Corner knows that I've spent hours and hours over the life of this call telling people, you know, do defined risk strategies look to re own, you know, look to reown your tails, buy back a lower strike put to protect yourself or something like that? You know, and that's exactly what it says here, right? It's saying use a defined risk strategy based on the $50 support level. So you could, for example, you know, selling at the money put or close to the money put around put support, say a $60 put and buy a $50 put back so that you know you're risking 10 bucks.

[00:21:37.24] - Speaker 1
If you're a pure options trader, you're not interested in owning the stock. That's the way to go, you know, limit that risk. If you're doing cash secured puts or a wheel strategy so you have some money sitting there in a money market, you're looking for stocks to get long. That's another way to limit your risk. You still have, you know, sort of unlimited downside risk in terms of, you know, any single stock can go to zero if there's a bankruptcy event. But if you do that across a diversified portfolio and you have the cash sitting there to own the, the stock and you're happy to, then that can work great. So and, and turns out when, when we've looked at a lot of the research on this, a lot of economics research has said you don't need to own that many stocks to be diversified. Of course, I still recommend to everybody one of your primary and best bets is to simply be in, you know, S P or a Vanguard Total Market Fund for most of your wealth. But for your trading account, if you want to diversify a trading strategy, such as an option strategy, it can be a little more difficult to do that with ETFs if you want to express a view on outlier stocks.

[00:22:43.20] - Speaker 1
But it turns, so it turns out you only really need about 15 to 20 stocks. I think the magic number was something like 17 to significantly diversify your portfolio. So if you've got, you know, if you've kind of got the cash and the, you know, and the screens and you can pick about 15 stocks that work, you should be able to get pretty good diversification. And you can start to look at strategies like that and consider those to be fairly low Risk, at least from an options trading standpoint. Of course, you know, obviously no trading is, is. Is low risk, but when we think about de risking our strategies, you know, that would be the way to go. Pick 10 to 15 names, 10 to 20 names that are consistent with your strategy. Stick with your strategy. Of course, you know, you don't want to be changing strategies. That's the biggest way that people run into trouble. So, yeah, so this is, you know, this is a great example. Cytk, Feel free to look into that one. I haven't done the full research on it yet, but this would be one that I'd put at the top of my list along with some of these other ones.

[00:23:47.23] - Speaker 1
I wanted to talk about one, you know, going off the back of that idea that I just gave you. I want to talk a little bit about a strategy that, that can work really well in an environment like this. You know, we talked a lot at the beginning of this stream about how SPX seems like a sale and frankly, many, many stocks seem like a sale from a volatility standpoint. Right now, again, we talked about this chart. How do we take advantage of volatility when it's ranging from 18 to 25%? How do we take advantage? If you've listened to this, you know, to me talk before, you've heard me say, sell umbrellas when it's raining. You want to sell umbrellas when it's raining. So now is when you want to be selling that option, volatility. So what are some strategies we can look at to do that? So we just talked about a classic one, which is you can just pick a direction. You could look for stocks that you have a view on that say you'd like to own, and then you can look and see if they're close to put support. If they're close to put support, you maybe sell the put and hold cash against them so you can buy it.

[00:24:57.26] - Speaker 1
If you're trading with more leverage, you just sell a put spread so that your risk is defined. Alternatively, what would we do if we're next to call support or, sorry, call resistance? You could look to, you know, if you're bullish, you could look to buy the stock and sell the call. Do a covered call strategy. So you're saying, well, you know, I'm not terribly bullish, you know, or I'm bullish this stock, long term, I think technically it's got a lot of resistance going against it and I'd like to sell volatility on it. On it. So I'm just Going to sell the call there. Embed on the fact that you know that's effectively cheapening your purchase price. You're saying I think it's going up, but I don't think short term it's got a lot of upside. So it's a way to juice your, your call purchases. And the great thing about Quinn here is that you can come in and just have a conversation about that so you can say, you know, what are ways to sell volatility? And it'll probably give you a few of these right here. You know, it already told us about a put and a put spread.

[00:26:11.10] - Speaker 1
So credit spreads. That's right. That's what we talked about. If you're just looking to outright sell volatility, here's a couple of great ones. So Iron Condors and are like strangles. I would always recommend the Iron Condor over the Strangle. It's a little confusing. Great name though. But it's effectively selling a strangle and buying another strangle further out to protect you. So it's like said, another way you're selling a put spread and a call spread. If you have a directional view. Okay, and then we can come. What if I have a directional view? It is likely to rally from put support. So these are the kind of great questions for those of you who aren't regular users of LLMs or ChatGPT. I would guess the sort of folks who are on Mentor Q are probably pretty early adopters of technology and looking to learn new things. But you know, for those who are not should know that I think one of the best ways to work with these kinds of tools is to not ask big open ended questions. Don't say what should I trade and how should I trade it? But go in with lots of little quick questions and challenge these things a little bit because they do tend to hallucinate.

[00:27:32.18] - Speaker 1
They can be a little bit overly supportive of bad ideas. So if you go in and you kind of have a thesis like help me find a stock that fits these criteria. Okay, then how would I do this? Well, do I have unlimited risk exposure? Ask all those little quick questions. I've been really pleasantly surprised so far that Quinn is very risk averse, you know, very conservative in terms of encouraging credit spreads and buying back tails, taking defined risk. But you can never be too careful with your own money. Right. These are great tools that help you speed up your research, but you're the one who has to make the final call. So you know, here's a great. So it's telling us that we can, you know, bull call spread that gives you a long exposure. Those who are familiar with our talks about delta, remember that buying a call spread would give you a long delta. Also selling a put or a put spread, but also give you a, a long delta. You want to be short volatility though, right? Exactly. You want to combine directional, bullish conviction with short volatility exposure. So, you know, we can do a short put in a long call.

[00:29:01.10] - Speaker 1
This is interesting. I mean, even I'm learning stuff here. So a ratio call spread, you buy a call and you sell more calls up above and that net allows us to, you know, sell volatility. So a lot of great ideas that you can get from this iron butterfly, you know, it's pretty powerful. You know, I'll also bring up a few examples of how you can build a screen. I showed you before how you could create a screen in here and then save it. But one of the other things that I wanted to bring up was I wouldn't start with just creating screens. I think for a lot of our listeners. What I've seen is a lot of our listeners are really curious. They are way ahead of what we'd call the average retail trader. The average individual who doesn't know a lot about options and this various kind of proprietary data. But, you know, but there's often a lot of questions. How do I put it together? How do I convert this into a trade idea? And that's where I really prefer the, the chat, you know, so, so how, how can I identify some stocks or ETFs that are good candidates for selling options?

[00:30:17.08] - Speaker 1
So that's kind of where I would start. You know, if you don't, if you don't know anything else, if you haven't memorized, you know, a lot of the stuff that I, I say on our call about kind of VRP and all that stuff, then you know, that's, that's where I would start. Just, just start broad and then narrow it down, narrow it down, narrow it down. So look at that. You know, that's really interesting. So it gave exactly two of, so my two favorite criteria, plus it added, you know, two more which, so again I'm, I'm always learning as well here. And this is what's so great about these LLMs. And there's so many tools available on Menthorq. There's so many different analytics, the hard parts, incorporating them all. So this, this will, will allow me just having this conversation, asking these prompts to kind of upgrade my screens. If I'm pulling into any stocks just looking for high IV rank and positive vrp. Remember those are the two things we talked about the beginning of the call that I like to look for. And currently S&P 500 and QQQ both fall into this category.

[00:31:22.02] - Speaker 1
High IV positive VRP. So great, you know, option selling candidates. But also, hey, let's look for a low volume score and a positive Jacks. So now let's ask some more questions. So low to moderate vault. So what does that mean? Because, you know, even as an options trader professionally and having my own options trading fund, I'm still not always familiar with all the terms that Menthor Q uses. You often find different terminology across the industry. So we can go make sure we understand exactly how these scores scores are being calculated. So 0 to 2 low to moderate volatility score says there's a calm market, less chance of large moves blowing through short strikes and positive Jacks. That means dealers are long gamma prices are going to stabilize naturally. So these first two are telling us really about implied volatility. Is implied volatility high or and is it high relative to realized volatility? And these next two are telling us about Mentor Q's proprietary ways of modeling what realized volatility will actually be. So those are, those are new things even for me that we want to try to incorporate so we can see a nice screen here.

[00:32:31.29] - Speaker 1
We can see. And so, you know, maybe I'm going to want to build this and use this to override my eventual screen. And so that's what I would suggest is, you know, really talk, go back and forth with, with Quinn, you know, get that screen really refined so it's showing you exactly what you want, you understand all the inputs to the screen. And then I would get a prompt for that and go into the create screener and create it, make sure it's matching. Of course, always trust, but verify Quinn. Pretty trustworthy. Still requires a lot of verification. So go in, create it and save it and then you'll really be ready to run. So this is a great example. Hey look, Cytk showed up again. That's always good. Anytime you can get kind of to the same answer independently from, you know, from kind of working with an LLM, you know, large language model two different ways that should always reassure you that it wasn't a hallucination or that you didn't have kind of a bad parameter or bad context the first time. So you're going to always feel really good anytime you can see, you can see things, you know, sort of, you Know, lining up a couple different ways independently.

[00:33:49.23] - Speaker 1
As a trader, you know, when I look at my fund, you know, we tend to talk about these models, but for my particularly kind of quant, particularly detailed quantitative strategies for cyndical capital, we tend to run models and models. So we don't just accept one, you know, technical factor. When we look at outlier detection, we'll typically run seven or eight different models to identify if something's an outlier. We'll look at group clustering by, you know, for a regime. If we want to look at the interest rate yield curve, we ask important questions like, you know, hey, does this look like it's close to a, you know, to a sort of high interest rate regime where the Fed's fighting inflation? Does it look like a low one where the Fed's trying to stimulate the economy, or does it look like it's kind of out of whack for both of those? You know, so then we'd also look at regressions and say, you know, how high or low do interest rates seem right now? So we just keep going and going and going. And for that we can run five different regressions. That's probably a little more detailed than most of you are going to be doing.

[00:34:52.07] - Speaker 1
But the idea here is what we call it a model of models. In data science, we want to, we want to see if we get the same results from a variety of different models because sometimes your filter or your screen produces some arbitrary artifacts. If you build enough models, you're going to find a bunch of random findings. But when you can get five or six models to align and show the same few names coming up again and again, then that starts to give you some confidence that you're doing things the right way. So, you know, we can, you know, later on we can go back and check and see if some of these other names pop up, like Fubo opk. I'd probably stay away from the ultra shorts and ultra crudes right now just because, you know, I'd be careful trading options on. That's a lot of leverage options on a double long or a triple long or triple short. But gasoline could be a really interesting opportunity. We'll talk about that a little bit at the end if we have time or don't get any other questions.

[00:35:53.08] - Speaker 2
So, you know, Ryan, actually Fubo is very interesting because I somehow ended up holding it in a portfolio and I've been selling options on that. And you get a lot of premium for.

[00:36:04.27] - Speaker 1
On which one?

[00:36:06.01] - Speaker 2
Fubo? The first, the second one?

[00:36:08.29] - Speaker 1
Yeah, no, that's that's great to know. I mean, I want to take, I'm always looking for new names that can be good candidates. And so yeah, obviously the price, the

[00:36:18.21] - Speaker 2
price has gone down a lot but like in my case, I've offset the losses by continuously selling, selling calls, which

[00:36:26.28] - Speaker 1
is, yeah, that can be huge. Because one of the strategies that I wanted to talk to everybody about is, well, let's say I'm not really comfortable selling options, you know, but I want to start to incorporate that into my portfolio. But I'm still more of a buy and hold investor. I more believe in buying stocks that I know. So I want to talk to you about, you know, there's, there's, there's two basic strategies and then there's one strategy that combines those two for in a really interesting way that I've been a big fan of lately and particularly right now when you're interested in southern volatility. So the first one is the covered call. And again you can ask Quinn, you know, or you can go into the Mentor Q documentation and look up covered calls. You can also just Google it or ask a generic chat GPT for that. So the covered call, we buy a stock and then we sell, you know, calls above it to help cheapen up the price. And again, we do that when we like owning the stock but we think its upside is limited or we think implied volatility is really high.

[00:37:27.17] - Speaker 1
So we can get better returns on, on selling volatility than we can get by just being long the stock. And I really like that strategy right now personally, or something like that. Why? Because, you know, when you look at the stock market over the last 10 years we've had this massive rally. From a fundamental valuation standpoint, things are, you know, very high. That does not mean we're going to go down. Fundamentals do not have to, do not force us to go down. You usually need some sort of catalyst, a crisis, you know, some sort of event that can push the markets much lower. So while I think there's a lot of downside risk and I think it's going to be harder each year for the market to keep up the growth that it's had. By no means does that mean we're going down and you don't want to get out of the market because historically when you look at people who underperform form the market, it almost always comes from being out of the market too much because on average the market goes up. So what can you do? Great strategy is covered calls, particularly when volatility is high or you're focusing on high volatility stocks, just as Fabio described.

[00:38:30.26] - Speaker 1
You know, yeah, stuff's been going down lately. It's, I think we're just running into some natural resistance for all stocks because valuations are so high. It's just going to get tough for them to find more good news to push them higher. But when volatility is high, like it's been the last few weeks, you know, with these attacks and on Iran, you know, it's, it's, it's really the perfect time for you to find a way to generate returns without needing the market to go up a lot. So then, you know, and, and, and not get out of the market, even if you're a little bit bearish or concerned about the market. The other one is the cash secured put. Similar concept where you'd like to be along the stock, but in this, and sell volatility. In this case, you're not default long. The stock, you have cash set aside to buy the put. You sell a put down below because maybe you don't want to buy it yet, but you know, you're happy to buy it if it, if it falls enough. So that's the, and that's really very closely related to the covered call. It's, it's almost identical strategy with the only difference being that in one your cash is sitting in a money market and the other it's tied up in the stock.

[00:39:45.28] - Speaker 1
The covered call works better if you already own the stock, you have some capital gains, so you don't want to get out of it. In that case, you just want to roll your call before it exercise gets exercised against you. Even if it's in the money, you can still roll it because the idea is that you want to avoid a capital gain if you're looking at getting into a new position. The cash secured put can make more sense because you can keep your cash in a money market while you wait. And then of course, the final strategy I wanted to talk about is the wheel, which is a strategy I've been looking at a lot lately on high volatility stocks, which is mixing those two. So basically, you know, if you have an entry level for a stock you want to get, you sell the put, you have the cash set aside to buy it. If it goes down, you buy this, you know, through the put level you get assigned, you buy the stock, send the cash out the door, and you immediately start selling the call up above it so that if it rallies back, you'll get taken out and you can just reenter your Normal position.

[00:40:45.24] - Speaker 1
That strategy works really great in a range bound market and when volatility is high. And if these strategies are blowing your mind a little bit again that's why I'm so excited to talk to you about Q today. I just asked it earlier to talk to me about the wheel strategy. So you can ask it a simple question like describe how I could use a wheel strategy on one of these stocks and you'll get a great example. And just like I said, right. Sell a cash secured put on a stock you'd like to own if assigned own the shares and sell a covered call if called away. Sell your shares if you the strike and return to step one. You know that's really succinct, probably more succinct than I was. It walks you through a full example of how to execute this strategy and then it even gives you some tips for how you can optimize your wheel. And I love it. This is just what I would do. Identify gamma for support support zones to pick where to sell those puts or if you're selling the call I'd look up at call resistance. So this is exactly how I, how I do and I wouldn't do use Menthor Q for my own fund is I want to identify those technical puts and, and put, you know put support and call resistance levels and use those to you know, kind of strike my options.

[00:42:14.13] - Speaker 1
You know anybody who asked me for a strategy that just is going to work, you know, tell me how to make money, tell me how to buy the stock, you know, tell me when the stock's going to go up. I'm always, I'm always skeptical about people who describe stuff like that. At the end of the day you know nobody really knows that and if they did they wouldn't be sharing it with you. But when you have a good thesis, a good strategy that you want to execute that's when these tools become really helpful. Because now you can figure out because there's still a lot of questions that have to be answered what strike should I be selling? How, how you know, you know where if I'm going to set a stop out or define my risk, where's a good level? Well put support's a great, you know a great example or call resistance are great examples of how you can pick your strike. You know, should I do more or less of it right now? Should I occasionally take off? Let's say you've been exercised your put. Do you sell the call right away or do you want to wait?

[00:43:10.07] - Speaker 1
Well maybe if implied volatility is too low. You want to wait a bit, you know, to sell that call and you'll just stay long for a little while until implied volatility crosses one of your screens before Quinn starts telling you, okay, now it's time to sell the call again. So these are kind of just some of the great things we can also use Quinn to figure out, you know, how that's evolved over time and you know, how, how the wheel strategy would have worked on Cy tk. You know, I'm still playing with some of the kind of back testing in historical, no promises here in terms of, you know, how reliable this would be. And as always, you always gotta double check, trust but verify. But you know, it's, it's so great when you can save a lot of research time by just starting by asking a key question to Quinn and you can get at least an indicative answer that you dig into a little bit later. Looks like we may be stalled out a little bit. See if I can refresh this. There we go. Just needed a quick refresh. So you know, this is how we can adapt it and risk manage our strategy a little bit better using the mentor Q to tools.

[00:45:03.12] - Speaker 1
And you know, even I would have some questions about how I could do that. And, and now we can get that answer really, really fast. So here we go. A six month study of kind of full report. You would typically need an analyst to do this for you. You know, like a full time analyst if you were a fun portfolio manager. And here you can get a whole six month study, kind of qualitative study written up from you. And you know, I'm probably not going to make you all listen to this, but I have to say I'm really interested in myself. I'm thinking already I feel way more confident that I can quickly get up to speed. For those of my regular listeners, you know, I often would find a stock on the screener and say this seems really interesting and stop there because it was kind of, you know, I don't have time to do the research while we're on a stream. Nobody wants to sit there while I pour through financial statements or, you know, technical data. But here you go. You can suddenly get a six month study on the fly of how a strategy might have worked and if it's likely to continue.

[00:46:00.21] - Speaker 1
So again, I won't, I won't read all this to you. But you know, this is just such a powerful tool here where you can talk this through. You can see when you might have tweaked it like you could have Skipped the standard wheel and just bought calls or call spreads at a certain point. Yeah, see, this was back when exactly like I was saying, when implied volatility was really low and you were selling puts at a discount to fair value. Why not just buy some calls to get some cheap exposure to the stock? And then later on, when volatility spikes, we can buy that stock and turn around and sell that implied volatility, sell the calls that we call spreads that we bought, and sell even more calls against the stock after we purchase it. Look at this. We learned that from October to the end of December, it was prime wheel territory. Positive vrp. You always hear me talking about that. And high IV rank. So that's when we want to stick with the traditional wheel. Here we have a regime shift. Volatility going up, the imp in IV coming down. So, anyways, I'll let you all play with some of these, you know, and just a quick reminder, it saves a lot of these chats for you here in the side, so, you know, comparable to some of the other AI tools that you can use out there.

[00:47:24.06] - Speaker 1
So, again, just take advantage of these, save some of your key questions, build off of those questions, Try to build screens. And then. I haven't done this yet. Let's see how this works. So I haven't done this yet, but I'm gonna get cute here. Again, I love stressing this in front of Fabio. So here we go. So now we can just ask it for a prompt. Oops. We'll see how this works. Let's go over to create here, See if we can get it done or if we're stressing it too much for poor Fabio's heart. Here

[00:48:35.25] - Speaker 2
you are putting it to the test.

[00:48:37.23] - Speaker 1
Sure. Yeah. There you go. Looks good. I have to test some of the underlying data, but this is our wheel screen again. I'd want to make sure that this lines up first pass. I'm thinking it might need some refinement, because it looks like Cytk did not make the cut here, but maybe that's because these are even better. So. So, you know, you can save it this way. You'll need to go back and forth and refine it a little bit, but again, you know, once you get it just where you want it, then you can go ahead and. Yeah, it looks like we're not getting Fubo. So maybe I finally tricked Quinn, but I've been trying to trick Quinn now for a couple of days and see if it will screw up. And this is probably one of the first ones, so I'M still working on figuring out how to get my screeners just right and saved. That's why for now I'm still recommending, you know, if you have a very clear one and you can get it right, then, you know, you're going to save a ton of time going in and creating it and saving it here.

[00:49:44.13] - Speaker 1
But, you know, while you're figuring it out, I, I strongly recommend using the chat so you can go back and forth and get it. And also a quick reminder that if you're not sure what questions to ask, if, you know, if I kind of blew your mind with some of the stuff we did on this call, they've always got the inspire me prompts. And so these prompts are really powerful. You know, you can just kind of jump through here, find. Okay, I'm a, you know, I'm looking for financial research just to understand how a stock's going to move or I'm a zero d, you know, zero dte trader. Show me, you know, specific things that I can trade around. Futures trader, swing trader. But again, you know, I, I think that the sky's the limit here. It doesn't take a lot of rocket science to say, like I want to start selling options under the new chat and then just figure that out, like, kind of how would I start to identify stocks and challenge it? You know, like one of the things I didn't mention before was, you know, it included option score in our screen but I don't remember exactly how option score is calculated by Menthorpe Q because, you know, different people would have different ones.

[00:50:46.11] - Speaker 1
So let's ask it, you know, tell me how options score is derived. And how that detects bullish versus bearish sentiment. That's great. So we're looking. So it's, we're incorporating call verse. Put volume change in open interest at the key strikes skew and implied volatility slope, you know, relative strength of short dated versus long dated activity and dealer gamma and delta positioning. So this is a pretty complex, you know, pretty rich model. So if you're, you know, interested in learning more about the options for. I'd really play with this. This is a great example to ask some specific questions. So like what might have to happen, You know, to push the option score up from say 2 to 3. So there we go. We need to see either a change in increase in call buying relative to puts. We need to see more open interest built up in calls. We need to see an increase in the call implied volatility relative to puts and changes in the risk Reversal. So, I mean, this is just so powerful. I mean, you know, I'm having a blast using this, and I can't recommend this stuff enough. You know, everybody should get on here and.

[00:52:29.18] - Speaker 1
And stress it out. If. Whether you have just a few questions to ask or, you know, maybe spend some time refining them or if you're a premium, you know, just. Just really stress this thing out and figure out how much you can. Because these safe screeners save us so much research time for all our regular, you know, for all our regular listeners. You know, we have to. We always come in and we. We'd start with the VRP model, and then for each stock, we need to click into it and go to, you know, at the money term structure, and then smile and, you know, and I'm not complaining about all that. There's never really been a tool to aggregate all that before. That's not really an indoor queue weakness. That's just the kind of challenges that we have to deal with. Okay, great question here. And that's how I always love to finish, is addressing some questions. So how do you understand the IV rank is around 40, but percentile is 90? You know, Fabio, do you know about that? Because I've also seen some differences in percentile, I think IV rank. Let's actually see if Quinn can help us with this.

[00:53:39.11] - Speaker 2
Yeah, those are two different calculation, right?

[00:53:46.29] - Speaker 1
I think the rank is comparing it to other. Other stuff, whereas the percentile is for itself. You know, again, this is always fun to kind of explore together and figure this stuff out. Here you go. So even better than the answer that I'd give you. So IV rank compares the range of historical volatility over the past. Over the past 52 weeks. IV percentile is based off of where IV was. So one measure, IV rank, is telling us, based on how volatile this stock's been in the past, how. How does implied volatility compare right now? Is it saying it's going to be more or less volatile? And implied volatility percentile tells us based on where implied volatility has been in the past, how high or low is it? So is it a better, worse? And of course, the difference between those two will. Will ultimately result in the vrp, the volatility risk premium. Right. So if you realized volatility has, for example, come down, but implied volatility stayed normal for the IV percentile, then you'll see a higher IV rank, but a normal IV percentile, but then that'll ultimately result in a higher VRP volatility risk premium.

[00:55:19.13] - Speaker 1
Again. That's a lot. That's a lot to digest. That's a lot of words that sound similar. And that's why I think quite is just so powerful, because you can now kind of ask these things and dig into them and really zero in. And so should you be using IV rank or IV percentile? I'd argue both. Then the tricky part is do you want your screen to use one or the other? You know, I'd be lying if I said I had the answer there. I think you got to kind of look at both. Maybe make your screen a little bit broader instead of really, you know, instead of basing it off maybe everything above 50th percentile, you want to start it down at 30 or 40 so you don't filter out some interesting opportunities to have a high IV rank. But personally, if you're an option seller, I'd probably lean more towards IV percentile. And the reason for that is because maybe realized volatility was higher in the past for some reason. I'd be more curious. I think when we're deciding to buy or sell options, our bigger question is how kind of attractive is it to sell options relative to other times.

[00:56:25.01] - Speaker 1
And of course, if you're using the vrp, you can back that out. Yeah, so you know, there's. So yeah, just following up on that. Looks like if implied volatility is slightly low from historical, but ranks slightly below percentile is quite high, I'll have to dig into that one. If you. Do you have an example? If you want to give us a ticker, we can take a look at that and try to debug it. Because I, I confess I have some questions sometimes too about these things. So let us know a ticker since we're running out of time here, but thanks as always for tuning in and if anybody else has any other questions, let us know. If I can't answer them in the next 30 seconds, we'll try to get you an answer for the next volatility corner. Or again, if, in the meantime try asking those questions to Quinn. Let us know if you know if it doesn't give you the quite the right answer. If, if the answer seems fishy, let us know. We can dig in and try to enrich that. And it'll of course always help too.

[00:57:33.04] - Speaker 2
The other thing, Ryan, you can also leave a feedback like if you look at the, the thumbs up or thumbs down icon at the bottom of the chat, just leave a feedback and. And the team will act on that.

[00:57:44.13] - Speaker 1
Yeah, fantastic. So again, happy trading as I said at the beginning of the call, great opportunity right now for option sellers, especially those who were kind of hungry and starving for good option opportunities over the holidays and in the start of the year. So, you know, happy trading if you're looking to sell options and otherwise. Yeah, we'll see you in a few weeks.

[00:58:11.16] - Speaker 2
Right? Awesome. Thank you guys.

[00:58:17.16] - Speaker 1
Btc. I'll check that one out for next week. Bitcoin classic. Thanks, all.

[00:58:24.17] - Speaker 2
Have a good day.