Finding High Probability Options Trades with Volatility Visualizer

Volatility Visualizer is a charting tool built for Thinkorswim that uses advanced scanning capabilities to narrow down a subset of trades we believe have the highest probability of breaking out from their present channel. The tool is built to simplify the presentation of these names.

Finding High Probability Options Trades

If certain tickers consistently outperform their implied volatility, traders may conclude that those symbols are priced too cheap in the market.

That’s exactly what a Masters in Trading Community member did with $CCJ as shared with our Discord community:

Hey Traders:  Bought some $CCJ on monday after seeing the weekly options over 100% IV – due to the upcoming earnings. I took the trade, purchase the 25 strike calls of Aug at 0.74. One day later, the position was up 110% – price broke outside the upper weekly band.

When this condition happens and there's still time until the monthly expiration, the tendency is for price to continue moving in the direction it's going, with a next destination of the upper/lower monthly band.

In the case of CCJ, my approach has been to add a few GTC (good to cancel) sell orders to take profits when price reaches $28.50 – the current upper band.  

I'm OK with letting go of 2 or 3 units (out of 10) to fully recover cost basis + a bit of profit, and be left with 8 or 7 units with unrealized profits. Why not just hold till expiration for me in this particular case? 

Look back at the June option cycle. Price was rallying – at the time and I had been long the 22 strike calls. I should have been more disciplined and locked in some profits when prices hit the upper monthly band, but I wanted to let it run.

I didn't manage money properly on this trade, and well as you can see – price went down, and spent the next whole month doing nothing. 

My 22 strike calls, once deep ITM, expired worthless. I left the 700% profit in the options, plus the whole debit paid on the table. Mistakes a trader CAN NOT afford to make. 

These mistakes hurt me the most – not due to the loss of some capital, but due to feeling disappointed for not taking at least some profits. Never again. If you can relate to this story, I hope it helps you on your journey trading 

Moral of the story – manage your positions! 

Pick a strategy that works for you and stick with it. I personally like having my buy/sell orders in the market as GTC limit orders – these bands allow me to do this without second guessing myself.