Scanning for high volatility options on Thinkorswim is a crucial skill for options traders seeking to capitalize on market inefficiencies. Volatility, often measured by the Implied Volatility (IV) of an option, represents the market’s expectation of price fluctuations in the underlying asset. By identifying options with high IV, traders can potentially profit from significant price movements, either through outright trades or by employing volatility-based strategies.
Thinkorswim, a popular trading platform, offers a comprehensive set of tools and features to assist traders in their quest for high-volatility options. Its intuitive interface and advanced charting capabilities enable users to quickly identify and analyze options that meet their specific criteria. In this article, we will provide a step-by-step guide on how to scan for high volatility options on Thinkorswim. We will cover essential concepts, such as IV, and demonstrate how to use Thinkorswim’s powerful scanning functionality to find the most promising trading opportunities.
To begin, it is important to understand the concept of IV and its significance in options trading. IV is a forward-looking metric that reflects the market’s anticipation of future price volatility in the underlying asset. Options with higher IV tend to be more expensive than those with lower IV, as they carry a higher premium due to the increased likelihood of significant price movements. However, high IV can also present opportunities for traders to profit from mispricing or market inefficiencies. By identifying options with IV that is significantly higher or lower than historical norms or the market’s expectations, traders can potentially capitalize on potential overpricing or undervaluation.
Identifying High Implied Volatility Using the Probability Calculator
The Probability Calculator in Thinkorswim is a powerful tool for identifying options with high implied volatility (IV). IV is a measure of how much the market expects the underlying asset to fluctuate in the future. The higher the IV, the more expensive the option is. Using the Probability Calculator, you can quickly identify options with high IV that may be suitable for trading.
To use the Probability Calculator, follow these steps:
- Click on the “Options Chain” tab for the underlying asset you are interested in.
- Select the “Probability Calculator” tab.
- Enter the strike price and expiration date of the option you are interested in.
- Click on the “Calculate” button.
The Probability Calculator will display a table that shows the probability of the underlying asset closing at or above the strike price on the expiration date. The table also shows the implied volatility for the option. The higher the IV, the lower the probability of the underlying asset closing at or above the strike price.
Here is an example of a Probability Calculator table:
| Strike Price | Expiration Date | Probability | Implied Volatility |
|---|---|---|---|
| 100 | 2023-01-20 | 0.65 | 25% |
| 105 | 2023-01-20 | 0.40 | 30% |
| 110 | 2023-01-20 | 0.25 | 35% |
In this example, the option with the highest IV is the 110 strike price option. This option has a 35% implied volatility. This means that the market expects the underlying asset to have a 35% chance of closing at or above 110 on the expiration date.
Filtering Options by Volatility Rank
To filter options by volatility rank, follow these steps:
- Select the "Analysis" tab. This tab is located at the top of the Thinkorswim platform, next to the "Charts" and "Trade" tabs.
- Click on the "Volatility Rank" filter. This filter is located in the "Options" section of the Analysis tab.
- Set the desired volatility rank. The volatility rank is a number between 0 and 100, with 100 being the highest. You can enter a specific volatility rank or use the slider to adjust the range of volatility ranks you want to see.
- Click on the "Apply" button. This button is located at the bottom of the Analysis tab.
The Volatility Rank filter will now only show options that meet your specified volatility criteria. This can be a helpful way to narrow down your search and find options that are more likely to experience large price swings.
Additional Information on Filtering Options by Volatility Rank
The Volatility Rank filter is a powerful tool that can help you find options that are more likely to experience large price swings. However, it is important to remember that volatility is not the only factor that affects option prices. Other factors, such as the underlying security’s price, the time to expiration, and the interest rate, can also have a significant impact on option prices.
When using the Volatility Rank filter, it is important to consider your own investment goals and risk tolerance. If you are looking for options that are likely to experience large price swings, then you should use a higher volatility rank. However, if you are looking for options that are less risky, then you should use a lower volatility rank.
The following table shows the different volatility ranks and their corresponding risk levels:
| Volatility Rank | Risk Level |
|---|---|
| 0-20 | Low |
| 21-40 | Moderate |
| 41-60 | High |
| 61-80 | Very High |
| 81-100 | Extreme |
Exploring the Volatility Surface Table
The Volatility Surface Table in Thinkorswim is a powerful tool for analyzing and trading options. It provides a comprehensive overview of the implied volatility (IV) of options for a given underlying asset, at different strike prices and expiration dates. This information can be used to identify opportunities for trading strategies such as volatility arbitrage, delta-neutral trading, or hedging positions.
The Volatility Surface Table is located under the “Analysis” tab in Thinkorswim. It can be customized to display a variety of information, including:
- Implied volatility (IV) for each strike price and expiration date
- Historical volatility (HV) for the underlying asset
- Volatility skew (the difference between IV for calls and puts at the same strike price)
- Volatility smile (the shape of the IV curve at different strike prices)
By analyzing the Volatility Surface Table, traders can gain insights into the market’s expectations for future volatility. This information can be used to make informed decisions about option pricing and trading strategies.
Identifying High Volatility Options
To identify high volatility options in the Volatility Surface Table, traders can look for options with a high IV compared to the HV of the underlying asset. These options are likely to be more expensive than options with lower IV, but they also have the potential for greater returns if volatility increases.
Traders can also use the Volatility Surface Table to identify options with a high volatility skew or smile. These options may be attractive for strategies that involve profiting from changes in volatility.
| Volatility | Skew | Smile |
|---|---|---|
| High | Positive | U-shaped |
| Low | Negative | Inverted U-shaped |
The following are some examples of high volatility options:
- Options on stocks that are expected to make a big move, such as stocks of companies that are reporting earnings or that are in the news
- Options on commodities that are experiencing high levels of volatility, such as oil or gold
- Options on currencies that are in high demand or that are experiencing a lot of volatility, such as the euro or the yen
By identifying high volatility options, traders can position themselves to profit from increased volatility in the market.
Leveraging the Advanced Options Filters
To further refine your search, utilize Thinkorswim’s advanced options filters. Access these filters via the “Filters” tab in the options chain window. Here are some notable parameters to consider:
Implied Volatility (IV)
Implied volatility is a crucial indicator of options’ price sensitivity to underlying asset fluctuations. You can set a range for implied volatility to identify options with high potential for rapid price movements. Consider a volatility threshold above 50% for increased price sensitivity.
Volume
Volume represents the number of contracts traded within a specific period. Opt for options with substantial volume, as they indicate market interest and liquidity. A minimum volume threshold of 100 contracts ensures active trading.
Open Interest
Open interest measures the number of outstanding options contracts. A high open interest signifies market interest and potential price momentum. A threshold of over 500 contracts indicates a substantial open interest.
Days To Expiration (DTE)
DTE refers to the number of days remaining until the options contract expires. Focus on options with a DTE of 30-45 days, as they offer a balance between price sensitivity and time decay.
Chain Gap Percentage
The chain gap percentage indicates the difference between the bid and ask prices relative to the underlying asset’s current price. A high chain gap percentage, typically above 2%, suggests a significant premium paid over fair value.
To illustrate, you can set the following filter parameters to scan for high volatility options:
| Parameter | Threshold |
|---|---|
| Implied Volatility | >50% |
| Volume | >100 contracts |
| Open Interest | >500 contracts |
| Days To Expiration | 30-45 days |
| Chain Gap Percentage | >2% |
Isolating Options with High Historical Volatility
When attempting to isolate options with high historical volatility, you can use the following steps within Thinkorswim:
- Open the Option Chain window.
- Select the desired underlying asset.
- Click on the “Volatility” tab.
- In the “Historical Volatility” field, enter a value that represents the desired level of volatility.
- Click on the “Apply” button.
Additional Tips for Isolating Options with High Historical Volatility
Here are some additional tips for isolating options with high historical volatility:
- Use a longer historical volatility period. This will help to smooth out the data and provide a more accurate representation of the underlying asset’s volatility.
- Consider using a different volatility metric. Thinkorswim offers a variety of volatility metrics, including the historical volatility, implied volatility, and realized volatility. Each metric has its own advantages and disadvantages, so it is important to choose the one that is most appropriate for your needs.
- Use a combination of filters. In addition to historical volatility, you can also use other filters to narrow down your search results. For example, you can filter by expiration date, strike price, or option type. You can add multiple filters to create a complex search that will return the most relevant results.
Utilizing the Volatility Heatmap
The Volatility Heatmap is a powerful tool that allows you to quickly identify options with high implied volatility relative to their historical volatility. To access the Volatility Heatmap, navigate to the “Charts” tab in Thinkorswim and select “Volatility Heatmap” from the drop-down menu.
The heatmap will display a color-coded grid of options for the underlying security you are viewing. The colors represent the implied volatility of each option, with red indicating high implied volatility and blue indicating low implied volatility.
To identify options with high volatility, focus on the areas of the heatmap with the darkest shade of red. These options have the highest implied volatility relative to their historical volatility and are therefore the most likely to experience large price movements.
The Volatility Heatmap can be customized to your specific trading preferences. You can choose to display implied volatility, historical volatility, or both. You can also adjust the time frame used to calculate historical volatility. By customizing the heatmap, you can tailor it to your specific trading strategy.
Here are some tips for using the Volatility Heatmap:
- Focus on the areas of the heatmap with the darkest shade of red.
- Consider the time frame used to calculate historical volatility.
- Customize the heatmap to your specific trading preferences.
The Volatility Heatmap is a powerful tool that can help you identify options with high implied volatility. By understanding how to use the heatmap effectively, you can improve your chances of finding profitable trading opportunities.
Implied Volatility Historical Volatility Color High Low Dark Red Medium Medium Yellow Low High Dark Blue Analyzing Option Delta to Gauge Volatility
Option delta measures the sensitivity of an option’s price to changes in the underlying asset’s price. A high delta indicates that the option’s price will move significantly with changes in the underlying asset’s price. Volatility, on the other hand, refers to the extent to which the underlying asset’s price fluctuates. A high delta option is more likely to have a high volatility, as its price will move significantly with changes in the underlying asset’s price.
To use delta to gauge volatility, traders can look for options with high delta values. A delta close to 1 indicates that the option’s price will move almost one-to-one with changes in the underlying asset’s price. A delta close to -1 indicates that the option’s price will move almost inversely to changes in the underlying asset’s price. Options with high delta values, whether positive or negative, are more likely to exhibit high volatility.
Here are some additional factors to consider when using delta to gauge volatility:
- Time to expiration: Options with shorter time to expiration tend to have higher delta values than options with longer time to expiration.
- Strike price: In-the-money options tend to have higher delta values than out-of-the-money options.
- Underlying asset’s price: Options on more volatile underlying assets tend to have higher delta values than options on less volatile underlying assets.
By considering these factors, traders can use delta as a tool to identify options with high volatility and potentially profitable trading opportunities.
Delta Volatility 0.85 High -0.75 High 0.25 Low -0.25 Low Scanning for Options with High Open Interest
Open interest represents the total number of contracts for a particular option that are currently outstanding. High open interest indicates that there is significant market activity in that option, which can be a sign of volatility.
To scan for options with high open interest on Thinkorswim, follow these steps:
-
Open the platform and select the "Trade" tab.
-
Click on the "Options" icon in the top toolbar.
-
Select the "Scan" tab.
-
In the "Option Chain" section, select the underlying security and expiration date you want to scan.
-
In the "OI" column, select the "High to Low" option.
-
Click on the "Scan" button.
-
The results will be displayed in the "Option Chain" window.
-
Additional Tips for Identifying High Volatility Options with Open Interest:
-
Look for options with open interest that is significantly higher than the average for similar contracts: This could indicate that there is a large amount of speculative activity in the option, which can lead to increased volatility.
-
Consider the option’s strike price: Options that are at-the-money or near-the-money tend to have higher open interest than options that are out-of-the-money.
-
Check the option’s expiration date: Options that expire in the near term typically have higher open interest than those that expire in the distant future.
-
Monitor the option’s price movement: Options that are showing significant price changes could be a sign of volatility.
Scanning for options with high open interest can be a helpful way to identify potential trading opportunities. However, it is important to keep in mind that no strategy is foolproof, and you should always conduct your own research before making any trades.
Monitoring the Market Volatility Index (VIX)
The Market Volatility Index (VIX) is a measure of market volatility, and it is often used by options traders to gauge the potential risk and reward of their trades. A high VIX reading indicates that the market is expected to be more volatile, which can lead to higher premiums for options contracts.
To monitor the VIX in Thinkorswim, you can use the Volatility tab in the MarketWatch window. This tab will show you the current VIX reading, as well as a historical chart of the VIX over time.
You can also use Thinkorswim’s Scan feature to find options contracts that have a high VIX reading. To do this, follow these steps:
- Click on the Scan tab in the Thinkorswim toolbar.
- Select the Volatility tab in the Scan Criteria window.
- In the VIX Reading field, enter a value that is greater than 20.
- Click on the Scan button.
The Scan results will show you a list of options contracts that have a high VIX reading. You can then sort the results by VIX reading, premium, or any other criteria that you want.
VIX Reading Premium Symbol 25.00 $0.50 AAPL 22.50 $0.40 GOOGL 20.00 $0.30 MSFT By monitoring the VIX and using Thinkorswim’s Scan feature, you can find options contracts that have a high potential for volatility. This information can help you make more informed trading decisions and potentially increase your profits.
Combining Multiple Criteria for Enhanced Precision
To further refine your options scan, you can combine multiple criteria to target specific characteristics. Thinkorswim allows you to set multiple conditions within the scan parameters. By combining different criteria, you can create highly customized scans that deliver precise results.
For example, you could scan for high volatility options with the following criteria:
- Option Type: Call or Put
- Expiration Date: Between 30 and 90 days
- Volatility Rank: Above 70
- Volume: Greater than 500
- Open Interest: Minimum of 500
- Price: Above $2.50
- Delta: Between 0.30 and 0.50
- Theta: Negative
- Vega: Positive
- Skew: Neutral or Positive
The table below summarizes the criteria and their corresponding filters:
Criteria Filter Option Type Call or Put Expiration Date Between 30 and 90 days Volatility Rank Above 70 Volume Greater than 500 Open Interest Minimum of 500 Price Above $2.50 Delta Between 0.30 and 0.50 Theta Negative Vega Positive Skew Neutral or Positive By combining these criteria, you can narrow down your search and identify options that meet specific volatility, expiration, and volume characteristics. This enhanced precision allows you to make more informed trading decisions and maximize your potential returns.
How To Scan For High Volatility Options On Thinkorswim
To scan for high volatility options on Thinkorswim, follow these steps:
- Open the Thinkorswim platform.
- Click on the “Scan” tab.
- In the “Scan Criteria” box, enter the following criteria:
- Symbol: Enter the symbol of the underlying asset you want to scan.
- Expiration Date: Enter the expiration date of the options you want to scan.
- Option Type: Select “Call” or “Put” to specify the type of options you want to scan.
- Volatility: Select “High” to scan for options with high volatility.
- Click on the “Scan” button.
People also ask
How do I scan for options with high IV on Thinkorswim?
To scan for options with high IV on Thinkorswim, follow the steps outlined above and select “High” for the “Volatility” criteria.
What is a good volatility percentage for options?
A good volatility percentage for options depends on your trading strategy and risk tolerance. Generally, a volatility percentage of 30% or higher is considered to be high.
How do I find high premium options?
To find high premium options, scan for options with a high implied volatility and a long time to expiration.
