Market Measures - June 24, 2021 - IV Movement on Flat Days

published 1 month ago by tastytrade, Inc.

On mellow markets, implied volatility does not actually exhibit strong negative correlation with equity prices. The stronger negative correlation begins to appear when the S&P 500 moves more than 1%. Therefore, holding short delta does not provide much of a hedge during mellow markets, since IV and price have no relationship. The hedge really kicks in when markets start to sell off big as that is when IV and price see their negative correlation strengthen.

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