Three conditions before I sell premium
Implied vol sitting above realized vol. Variance premium right (VRP) there for the taking.
Simple, right? Until it isn't.
Selling premium purely off a VRP reading can be a dangerous game because implied vol is often high for a reason.
VRP alone is a single data point. I need three things lined up before I touch a theta trade.
First: dealer positioning. I want GEX in the upper percentiles. Dealers long gamma means they're hedging in a way that pins the market. Range-bound. Quiet. That's where time decay actually works for you.
Second: positive VRP. Implied above realized. Premium is genuinely rich relative to what's actually happening. This is the one most people stop at. Necessary, but nowhere near sufficient.
Third: Fixed strike vol compressing. The direction matters more than the level. I want confirmation that the environment is calming, and lower vol signals that dealers are getting more comfortable.
Below a sample from my daily single stock compass where we saw momentum fading and vol compressing in $GOOGL.
All three? Green light. One or two? Not quite 'the edge' I am after.
Positive VRP with dealers short gamma? You're selling premium into a market where positioning amplifies moves.
One overnight headline and your iron condor is in real trouble.
You need the full positioning picture before you put a trade on. Structure must match the environment, not just a single reading.
Imran
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