The Danger of Chasing Volatility: Why Timing Matters More Than Strategy in Options Selling

Introduction: The Illusion of “Easy Premium”

In the options world, elevated implied volatility (IV) is often seen as a gift, more juice for your squeeze, right?

But while high IV environments offer larger premiums, they also carry bigger risks. Too many traders jump into juicy credit spreads or naked puts without understanding the timing dynamics at play.

This article breaks down why “chasing volatility” can backfire, and how to think more intelligently about timing your premium-selling strategies, especially when IV spikes.

What Traders Get Wrong About High IV

A 40% IV Rank doesn't guarantee that you're entering a good trade, it simply tells you where current IV stands relative to the past. Here's the nuance:

• High IV Rank ≠ Ideal Entry
  A 90 IV Rank sounds enticing, but ask this: Is volatility still expanding, or has it already peaked?

• Late Entry Means You're the Liquidity
  If volatility has already surged and you're selling puts or condors after the spike, you're selling into a crowd. That crowd may include panic sellers, volatility chasers, and algorithmic models programmed to fade the same setup.

• The Volatility Cycle Is Reflexive
  Volatility often begets more volatility…until it doesn’t. Most traders forget the reversion tendency. Vol collapses are brutal when you're on the wrong side of timing.

Case Study: SPY During a Volatility Event

Imagine SPY sells off sharply over three days. IV Rank jumps from 22 to 76. Traders rush to sell puts.

But here’s the problem:

• Those who sold before the IV spike already locked in high theta decay and a favorable entry.

• Those who sell during the spike may collect more premium, but risk further downside if vol expands more.

• Those who wait just a bit longer, until signs of stabilization, can sell puts as vol contracts, locking in both decay and a volatility crush.

🎯 Key Insight: Selling premium into stabilizing volatility gives you edge. Selling into expanding volatility gives you exposure.

How to Time It Better: A Smarter Volatility Framework

Let’s introduce a more refined approach:

1. Use a Three-Lens View:

   • IV Rank/Percentile – Are premiums relatively high?

   • RSI (2, 7, and 14) – Is the underlying oversold or overbought?

   • Breadth/Momentum – Is the move broad-based or isolated?

2. Look for Reversal Clues:

   • Put/call ratios above 1.5

   • VIX > +20% in 3 days

   • Capitulation volume

3. Stagger Entry with Smaller Size:
   Scale into trades as the market begins to stabilize, don’t go all-in during peak fear.

Common Mistakes in High-Volatility Trading

Let’s make this brutally clear. Traders often:

• Sell puts on the first down day without confirmation

• Ignore RSI extremes

• Sell iron condors in expanding IV without defined risk

• Get greedy on premium and widen spreads too far

• Forget that liquidity dries up exactly when they need to adjust

This isn’t about avoiding premium, it’s about understanding when the risk is worth it.

A Better Way: Combine Structure + Timing

Here’s what professionals do:

• Structure the trade based on the chart and volatility regime
  (e.g., shorter duration credit spreads when vol is high, longer duration PMCCs when vol is low)

• Time the entry using RSI, IV percentile, and signs of price exhaustion

• Manage proactively, not reactively, adjust or close based on new volatility data, not emotion

Final Thought: Strategy Alone Isn’t Enough

You can have the “right” strategy and still lose if your timing is wrong.

In premium-selling, we’re not rewarded just for showing up, we’re rewarded for showing up when the odds are mispriced.

That’s what The Option Premium is built on: combining high-probability setups with smarter timing, smarter sizing, and disciplined management.

📍 Want to Master This?
Explore how we time trades using implied volatility, RSI, and breadth in our Wealth Without Shares and The Implied Perspective portfolios. Learn more at www.theoptionpremium.com

Probabilities over predictions,

Andy Crowder

🔗 Related Reading

• 📘 The Mathematics Behind Poor Man’s Covered Calls: Delta, Theta, and Probability

• ⏳ When to Sell Puts - Using Breadth, RSI, and Volatility as Your Guide

• 🎯 How to Sell Cash-Secured Puts and Covered Calls for Steady Returns in Bull, Bear, and Sideways Markets

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