Posted in
Daily Report
By: Tom Gentile
on March 27th, 2023
March was a tough time for investors. Especially those in the Financials; specifically investors in the Regional Banks Sector. Take a look at a chart of KRE if you don’t believe me.
There is some talk and actions that things may be improving and may end the regional banking crisis someday… soon? Not sure how soon, but some day.
Be careful if you want to go long options on Regional Bank Stocks.
High/Expensive IV
Out of all the lists the only financial stock hitting a list OTHER than the Expensive IV lists is Bank of America, (NYSE: BAC).
When it comes to giving yourself an edge in your options trading it is wise to consider options with a considered low or cheap IV.
Two things that work against you when buying or going long an option that is considered High or Expensive. 1) You are paying a higher price than normal (when IV is low or cheaper) which can cut into the amount of contract one would take based on their asset allocation rules and 2) When an option suffers what is called a volatility crush, (when the options IV adjusts down) the option premium becomes less than where it was when one opened it.
If the stock is not moving in the direction the type of option needs, (higher with a call and lower with a put), to get in the money and help with adding Real or Intrinsic Value the value of the option deteriorates and you could find yourself losing money on IV crush alone.
We would rather use the Morning Reports Lists to focus on stocks with cheap IV when it comes to buying to open option trade ideas.
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