Volatility Cones

These volatility cones are useful in determining the implied volatility of an option relative to the historical volatility. They are also useful for determining the future outlook for volatility, but that's like predicting where hurricane Ike is going to go. However, past performance is the best indicator we have to future events.

(CPSL Volatility Cone)

Looking at the Volatility Cone we can see that high low, and standard deviations from the mean of implied volatility. The October 5.00 calls are sitting above the mean just below the 1st deviation line. This tells me that IV is relatively high, and that this would be a slightly overpriced--expensive--option.

Now I am looking to sell the highest price option I can (or buy the lowest). I want to get as much bang for my buck. The Octobers' look like they have just enough time premium, and I have to get close to the money (yes, the IV of the 17.50 calls are off the charts, but they would not be worth my time--they are too far out of the money).

My September calls are close to expiration, and it looks like it's time again to write some new ones. Right now, October looks like the best choice, but we'll see what the November bunch looks like when they get here.