Using Breadth, Volatility, and RSI to Time Premium Selling

How We Use RSI, Volatility, and Breadth to Time Our Trades

Premium-selling has a reputation for being passive. Just collect theta and wait, right?

Wrong. Selling premium without timing is like sailing without checking the wind. You may still move—but not in the direction you want.

At The Options Premium, we don’t chase action—we anticipate it. We wait for the right volatility regime, the right price extension, and the right market context. Then we strike. Quietly. Systematically.

We use three pillars of timing that have withstood thousands of trades:

• RSI for mean-reversion signals

• IV Rank for identifying rich premiums

• Breadth for macro confirmation and context

These aren’t gimmicks—they’re tools. And when you combine them with structure and patience, you give yourself the one thing most traders lack: an edge.

Why Timing Isn’t Optional

Options trading rewards discipline, not boldness. Time decay may be your friend, but it’s a fickle one. Theta doesn’t work well when it’s deployed at the wrong time.

In trading, consistency trumps intensity.

If you sell into a low IV environment or a neutral market posture, you’re selling discounted insurance. And that’s a surefire way to underperform. Our job isn’t to force trades—it’s to manage opportunity.

We want:

• Elevated premiums (IV Rank > 40)

• Price extremes (RSI > 70 or < 30)

• Confirming signals from breadth to support reversals or slowdowns

The best traders I know spend 90% of their time watching and only 10% acting. Patience is a position.

RSI: The First Timing Signal

The Relative Strength Index (RSI) is a foundational tool for identifying price extremes, but it’s most powerful when used with context and supporting data.

We use three key RSI levels:

• RSI(14): Long-term overbought/oversold trend confirmation

• RSI(7): Medium-term acceleration or fading momentum

• RSI(2): Short-term reversion signals (great for timing entries)

Signal Thresholds:

• RSI(14) > 85 or RSI(2) > 95 = High-conviction bear call setup

• RSI(14) < 10 or RSI(2) < 5 = High-conviction bull put setup

But RSI alone isn’t enough.

To validate a trade, we also require:

• IV Rank > 40 and ideally IV Percentile > 60

• Put/Call Ratio extremes (above 1.2 for fear; below 0.6 for greed)

These help confirm whether the premium is rich and if sentiment is stretched. We want to see not just that the stock is overbought or oversold—but that volatility is elevated and positioning is offside.

Example:

• NVDA RSI(14): 88

• RSI(2): 99

• IV Rank: 64

• Put/Call Ratio: 0.55

That’s a textbook bear call setup: overbought, high premium, bullish sentiment stretched thin.

We don’t guess tops and bottoms—we stack data and let probabilities lead the way.

IV Rank + IV Percentile: Is the Juice Worth the Squeeze?

IV Rank tells us where current implied volatility stands compared to the past year. It’s like walking into a store and knowing if prices are marked up or on clearance.

• IV Rank > 40 = Green light to sell options

• IV Percentile > 60 = Confirms rarity of current premium levels

When both indicators align with RSI, you’re not just selling premium—you’re selling expensive premium.

It’s not just about collecting $1 in theta. It’s about collecting that $1 when the odds of a calm market are highest.

Think about what you’d pay for car insurance if you knew the person was driving recklessly. IV Rank tells you how risky the market thinks the road is.

Breadth: The Macro Context Most Traders Ignore

Breadth measures how many stocks are participating in a move. It tells us whether a rally is broad-based or narrowly driven—and whether risk-taking is increasing or fading.

Here are the key breadth tools we use:

1. $SPXA50R (Percent Above 50-Day Moving Average)

• Above 80% = Market is overbought

• Below 25% = Market is washed out

2. McClellan Oscillator & Summation Index

• Measures the rate of change in market internals

• Slowing values signal momentum deterioration

3. A/D Line Divergence

• Market makes new highs while breadth declines? That’s a warning sign

Breadth helps us avoid two common errors:

• Selling bear spreads into real uptrends

• Buying bull spreads when only a handful of names are bouncing

It’s not about getting bearish or bullish. It’s about asking: Is the wind at my back, or in my face?

A Full Setup Example

Let’s say we see this setup on TSLA:

• RSI: 78 (overbought)

• IV Rank: 62 (elevated premium)

• $SPXA50R: 83% (overbought breadth)

This tells us:

• Price is stretched

• Premium is juicy

• Market may be running out of gas

Trade: TSLA 280/290 bear call spread, 30 DTE Why: You’re stepping into a premium-rich, sentiment-fueled setup with a probability advantage. Not a prediction—just a position.

“The intelligent investor is a realist who sells to optimists and buys from pessimists.” — Jason Zweig

When to Sit on Your Hands

We don’t force trades. When RSI is neutral (40–60), IV Rank is below 25, and breadth is mixed, we stay patient.

• That’s when the market is in balance.

• That’s when premium is cheap.

• That’s when you’re the one overpaying to be involved.

Most losses don’t come from bad trades. They come from good traders feeling like they have to trade.

The Implied Truth Tables: Where Ideas Are Born

Every week, we scan over 100 stocks and ETFs through our timing filters:

• RSI extremes

• High IV Rank or IV Percentile

• Unusual combinations (e.g., high IV + low realized vol)

The Implied Truth Tables aren’t just trade generators. They’re a risk-aware map of where premium sellers should be looking.

Use them as your:

• Weekly filter for setups

• Tactical scanner for volatility conditions

• Macro gauge for sentiment extremes

Final Thoughts

Timing isn’t magic. It’s discipline wrapped in data.

By layering RSI, IV Rank, and market breadth, we avoid the biggest pitfall in options trading: selling when we should be watching.

In the The Implied Perspective, we’re not chasing quick wins. We’re building a structure that supports repeatable results. No fluff. Just probability, patience, and precision.

The market is a story we tell ourselves every day. The best traders are those who can pause the narrative and wait for a better entry.

Want our best signals delivered weekly? Subscribe to The Implied Perspective and get trade alerts based on RSI, volatility, and macro breadth conditions.

FAQs
Q: Why use RSI with IV Rank?
A: RSI identifies when a stock or index has moved too far, too fast—indicating it may be overbought or oversold. IV Rank, on the other hand, tells us how expensive the options are relative to their historical volatility. When both are elevated (e.g., RSI > 70 and IV Rank > 40), you're selling premium at inflated levels while positioning for mean reversion. This combination increases the probability of success and enhances the reward-to-risk ratio. It's about selling into extreme emotion and getting paid a fair price to do it.

Q: Do these signals work on individual stocks or just ETFs?
A: They work across both, but with nuances. Broad ETFs like SPY or QQQ offer more stable behavior and lower gap risk, making them ideal for newer traders. Individual stocks often exhibit stronger RSI and IV swings, which can offer bigger payoffs—but with higher volatility and event risk (like earnings). We use the same framework—RSI, IV Rank, breadth context—for both, adjusting our sizing and expectations accordingly.

Q: How often should I expect trades using this method?
A: On average, we identify 1–3 high-probability setups per week. But this number isn’t fixed. The whole premise of this system is to act only when everything lines up—RSI extremes, rich premium via IV Rank, and confirmation through breadth or sentiment indicators. Some weeks we trade more. Some weeks we wait. That’s the discipline. You don’t force edge—you filter for it.

Q: What if only one signal is present—like RSI but not IV Rank?
A: One signal alone might indicate opportunity, but it doesn’t necessarily mean high-probability opportunity. For instance, if RSI shows overbought but IV Rank is low, the premium you’re collecting might not justify the risk. Similarly, if IV Rank is high but RSI is neutral, you might be selling into a trend instead of a reversion point. We look for confluence. That’s where the edge lives.

Q: How do I manage trades that don’t move in my favor right away?
A: This framework helps stack probabilities in your favor, but no setup is perfect. If a trade moves against you:

• Check if the original thesis still holds (RSI, IV Rank, and breadth)

• Consider rolling the position out in time to allow more theta to work

• If conditions deteriorate, cut the trade and preserve capital The key is managing trades based on updated data, not hope. Most of our edge comes from risk management, not prediction.
  A: Because RSI tells you the trade is extended, and IV Rank tells you you’re getting paid well to bet on the reversion. Together, they filter low-probability noise.

Probabilities over predictions,

Andy Crowder

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