Truth be told, volatility analysis is a great idea, but only until the last month before expiration. In that last month, volatility simply doesn’t work reliably enough to be used. Why? Because extrinsic value (IV) is not logical and most or all of time value has evaporated.
What can you do at this point?
These short-term options ATM or slightly ITM are great for swing trading based on options, but you still need to be able to time entry and exit. At these windows, you can find reliable reversal signals in candlesticks, tests of resistance and support, moving average convergence and divergence, volume indicators, and momentum oscillators.
The key is confirmation. No one is going to be right 100% of the time, but using these indicators and getting confirmation greatly improves the percentages of profitable trades.
Michael C. Thomsett is a prolific blogger and helps investors and traders with trading education. He also has written dozens of trading and investing books and writes fulltime. His current project is Options for Swing Trading to be published next year by Palgrave-Macmillan. Thomsett lives near Nashville, Tennessee and operates his own options website, ThomsettOptions.com.
Michael C. Thomsett
What are your options? –ThomsettOptions.com