David Settle — Implied volatility is overrated – Options trading framework

Smarter Trading Podcast Episode 8

Hello everybody, our guest today is David Settle. David started in the investor education world in 2004 with Investools. He’s coached hundreds of individuals on how to invest and trade the stock, options and forex markets and he currently holds a CMT designation.

In this episode we dive into David’s options trading process and how he uses a top down market posture approach to inform his market bias and trade decisions. 

We discuss some contrarian views David holds about selling options that I really enjoyed hearing as a fresh perspective. 

We then get into some very practical advice on a lot of topics like: being willing to lose on trades, not getting attached to trades, selling options, volume profile, trading earnings, VIX term structure, and a whole lot more. 

Please enjoy this episode with David Settle.

Watch the interview in video here

Key learning points

► Don’t get so attached to trades by keeping size small
► Know how much you are going to lose and be willing to lose it
► Directional strength using relative strength
► How David uses volume profile to spot opportunity
► High implied volatility stocks are high IV for a reason
► Let the market posture dictate how bullish or bearish you should be
► No one single strategy works all the time
► Every single strategy or setup has benefits and drawbacks
► How David uses VIX Term structure to gauge market expectations

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Episode timestamps

0:00 – Introduction
1:45 – David’s background coming up in the 90s and investing
5:50 – Advice to new traders starting out; make small trades;
9:05 – David’s technical analysis approach to markets
14:15 – Stock market sectors: weightings and rotation
18:40 – What David looks for in directional trades
21:45 – Why implied volatility is overrated
28:45 – Managing a portfolio during changing market conditions
34:00 – No one strategy or setup works all the time
41:20 – The importance of VIX term structure
46:10 – Successful trading is about freedom to do what you want to do
50:30 – Directional trading versus time based options trades

Highlight clip: No one strategy works all of the time

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