Good morning, traders…

Jeff here. 

If you’re finding it difficult to score big in the options market lately, you’re not alone…

I had an incredible run in October — 16 out of my last 19 Burn Notice trades were winners…*

But if you look at my track record, I’m not bagging any massive, 100%+ trades — I’m making my living by stacking a bunch of modest, double-digit gains:

78% on DELL*

33% on DAL*

84% on DAL*

7% on DUK*

-12% on UBER*

25% on CCL*

11% on NRG*

27% on NRG*

89% on ARM*

7% on FSLR*

35% on UHS*

-4.7% on HMY*

76% on FSLR*

85% on MSFT*

-3.5% on MMM*

19% on TMUS*

6% on AU*

52% on ARM*

84% on AFRM*

There’s a reason why I’m being so disciplined with my exits…

Right now, we’re looking at all-time highs in the stock market, which would usually be a good thing for options traders…

But this time, implied volatility (IV) is through the roof — much higher than what we typically see at these levels. 

Even though the market’s on a strong upward climb, options prices are packed with extra uncertainty, making it harder to profit off vanilla call options. 

If you’re wondering why big % moves in the underlying stock aren’t delivering the gains you expect in the options contracts, the answer lies in this high IV environment. 

But don’t worry — there are ways to adjust and maximize your profits in this tape. 

Today, I’ll break down exactly what’s happening with IV, why it’s throwing off our usual game plan, and how we can work around it to find the best possible trades…

The Problem with High IV

IV is a crucial piece of options trading. It’s the market’s forecast for how much a stock might move in the near future. 

When IV is high, the market expects big swings — up or down. Options become more expensive because market makers (the people who sell you options) expect the potential for sudden movement. 

That can be great when you’re betting on something unpredictable, but it’s not ideal when you’re dealing with a steady bull market, where prices are slowly climbing without much drama.

Typically, when we’re at all-time highs, we expect a calm market with lower IV. But right now, we’ve got a high-flying market and high IV. 

So, what’s going on? There’s a mix of factors…

Economic uncertainty, global tensions, and general caution about how long this market can keep rising. 

Plus, this election result is sparking a lot of repositioning. Although I think Trump is very bullish for the market, there’s still uncertainty around exactly how he’ll enact some of the sweeping reforms he’s proposed. 

Bottom Line: Even though stocks are up, traders still feel nervous about a handful of factors, which is keeping IV high.

Why This Hurts Call Options

You might think high IV is great for options trading because of the potential for big moves. And it can be — if the timing and circumstances are right, or if you’re selling options. 

But with IV as high as it is now, the call options you’d buy to capitalize on a strong bull run are way more expensive. 

The market’s priced in so much potential movement that even a big upward move isn’t translating into huge profits.

Let’s use Tesla Inc.’s (NASDAQ: TSLA) recent blowout earnings move as an example. 

Say you had bought call options just out of the money before its earnings report. 

Tesla beat expectations, and those options doubled in value — sounds like a huge win, right? In this context, not so much…

Doubling your money on a risky bet like Tesla earnings isn’t as great as it seems. You’re taking on high costs and significant risk for a 2x return, which simply doesn’t cut it. (You want at least a 3-to-1 risk/reward on such a short-dated bet.)

If you make these kinds of high-risk/medium-reward trades time and time again … you’re bound to get smoked. 

High IV means you’re paying a premium on those options, so even a strong move in Tesla shares doesn’t bring in the level of profits you’d want on the call options. 

In a lower-IV market, a similar move could bring in 3x, 4x, or even 5x your investment. 

But in this high IV environment, doubling up just isn’t worth the risk. When the premium on options is this high, you’re not getting the reward to justify the risk. 

The Secret to Winning Big with High IV

There’s one strategy that works really well in this high IV, high share price environment — focusing on index options instead of individual stocks. 

Indexes are made up of many stocks, so their prices tend to be more stable and less reactive to individual news events. 

This lower IV on indexes means you’re not paying those extreme premiums that you’d face with options on high-flying stocks like Tesla.

The idea here is simple: in a high IV environment, look to trade options on lower-volatility assets. 

By trading indexes instead of individual stocks, you get exposure to the market’s upward movement without overpaying for the option itself. 

Lower IV means those options are cheaper, so if the market keeps climbing, you stand to gain without risking as much of your initial investment.

For example, instead of buying a call option on Tesla or Apple — which have both seen high IV recently — you could look at options on the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) or the Invesco QQQ Trust (NASDAQ: QQQ).

Plus, don’t sleep on the iShares Russell 2000 ETF (NYSEARCA: IWM) right now

— small businesses are poised to benefit greatly from a second Trump administration. 

These indexes have been rising with the rest of the market, but their options aren’t as inflated by high IV. 

This way, if the market continues to go up, you’re positioned to profit from the rise without paying the sky-high premiums plaguing individual stock options. 

This isn’t the easiest time to be an options trader, but it’s not impossible to profit…

High IV can make trading individual stock options frustrating and expensive, especially when you’re not getting the kind of returns you’d hope for. 

But by shifting focus to index options, you can ride the bull wave without taking on untenable risk. 

Happy trading,

Jeff Zananiri

P.S. The Winter Blitz Window is open again!

This winter, Tim Sykes is going on an all-out attack — aiming for more gains in the next 6 months than he’s made in the last 2 years.

Discover the “Winter Blitz” strategy that’s made Tim and his students MILLIONS every winter!

*Past performance does not indicate future results