Implied Volatility - Risk vs. Return Indicator

Being contrarian on implied volatility mitigates risks and enhances return

At both “The Compounding Tortoise” and “The Theta Tortoise” we love researching stocks and strategies.

For us, conservative options strategies is all about understanding 1) the strategy, 2) underlying product (steady compounders), 3) implied volatility, 4) scaling/sizing, and 5) the sequence of risk vs. return (i.e. thinking in terms of scenarios, win rate). We'll cover all five aspects on the blog.

Let’s start with Implied Volatility, and how it impacts our strategy. As we oftentimes say: with higher volatility comes opportunity, but let’s make it more tangible. At the end of the blog, we’ll address one of our premium members’ questions on risk vs. return. Additionally, we’ll put on a new trade today, benefiting from what our research calls: rising VIX = lower implied risk for new positions.