Options VOL Levels & How To Use Them

Decoding the Tools of the Trade

Hello Traders,

It’s time to dive a little deeper into how you can utilize the options vol levels that accompany your morning outlook. These aren’t just numbers; they're a compass for gauging market movements.

As savvy traders know, options market makers are akin to oracles of potential movement and ranges for underlying assets. The vol levels I provide are derived from daily implied volatility calculations across ALL option strikes and OPEN symbols for the ES. Think of these levels as a heatmap—indicative, not definitive, for your trades. They are best used as benchmarks for targets or to bolster the confidence in a trade setup already on your radar.

Here's the lay of the land on your chart:

- The centerline is the Options VOL Mean, our baseline from where the deviations begin.

- From this Mean, lines span out to mark increments of 2 standard deviations. There are three of these markers stretching both upward and downward, sketching out a 6-deviation range in total. 

- In a regular market rhythm, the ES dances within the 2nd deviation and might step out to the second into the fourth on more volatile days. Beyond that, the market’s stretching its legs too far—especially by the fourth deviation, it's typically overextended. The sixth deviation? It's like sighting a unicorn, rare and indicative of extraordinary market conditions. In my practice, I focus on the second and fourth deviations for daily trades.

For those of you playing the options game, these vol levels are gold. Over three years of backtesting shows that once a 2nd deviation level is touched, there’s a whopping 90% chance the day won’t see a close beyond the opposite 2nd deviation. That's a statistic you can’t afford to ignore, barring extraordinary news events. It’s especially useful early in the trading day, helping to establish a bias and setting the tone for your session.

I trust this gives you a clearer picture of the strategic value behind the vol levels I share. They're a cornerstone of my trading toolkit, and I’m handing them to you to sharpen your market edge.

Have a wonderful rest of the day and I'll see you bright and early ready to conquer these markets.

Cheers
Ryan Bailey