Unlocking the Power of Options VOL Levels: A Trader’s Edge

Understanding Daily Options Volatility Levels

Hello Traders,

Let's take a deeper dive into how you can maximize the value of the options volatility (VOL) levels included in your morning outlook. These figures aren’t just numbers; they're a strategic tool that can guide your trading decisions with precision.

Experienced traders understand that options market makers possess an almost clairvoyant sense of potential market movement and ranges for underlying assets. The VOL levels I provide are calculated from the daily implied volatility across ALL option strikes and open symbols for the ES. Think of these levels as a market heatmap—they're there to inform and enhance your trade setups, serving as benchmarks rather than absolute predictors.

Here's how to interpret the Volatility levels on your chart:

- The centerline represents the Options VOL Mean—your baseline, from which deviations are measured.

- Lines extend outward from this mean in increments of 2 standard deviations, marking key levels. You'll see three markers above and three below the mean, creating a 6-deviation range in total.

- In typical market conditions, the ES generally operates within the first 2 deviations. On more volatile days, it may push out towards the second or even the fourth deviation. However, once you move beyond the fourth deviation, the market is overextending. Reaching the sixth deviation is an exceptionally rare event, signaling extraordinary conditions. For my daily trades, I concentrate on the second and fourth deviations.

For those trading options, these VOL levels are invaluable. After years of back-testing, the data shows that once the price touches a 2nd deviation level, there's a 90% chance the market won't close beyond the opposite 2nd deviation—unless there’s an unexpected news event. This statistic is crucial, especially in the early hours of the trading day, as it helps establish a bias and guide your trading strategy for the session.

I hope this gives you a clearer understanding of the strategic importance of the VOL levels I provide. These levels are a cornerstone of my trading approach, and now you can use them to enhance your own market edge.

Have a great day, and I’ll see you bright and early tomorrow, ready to conquer these markets.

Cheers,

Ryan Bailey
VICI Trading Solutions