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Something strange has been happening in the options market over the last couple of months, and it’s the main reason I’ve pulled back on many of the discretionary trades I’d normally be sharing in the Opening Playbook and Closing Playbook.
The majority of stocks are now underpriced relative to their actual movement.
Options are always priced based on expected volatility, but lately those expectations have been far too low compared to what’s actually happening.
The VIX has been suppressed, options premium has leaned bullish and skew has been bullish since the beginning of April. Meanwhile, the average true ranges (ATRs) on these stocks — meaning how much they actually move — have remained wide across the board.
We’re not just talking about chip leaders either. As the Energy Sector (XLE) pushed higher on Monday, nuclear names went the opposite direction, with VanEck Uranium ETF (NLR) dropping nearly 5%.
We’re seeing big swings across nuclear, space, energy and financial stocks.
What the Numbers Actually Show
I ran through several names — Alphabet (GOOG; GOOGL), Costco (COST) and IBM (IBM) — and they all showed the same pattern: The market is pricing in 2% or 3% moves while the actual historical movement over the same window has been 3%, 4% or more.
On average over the last 10 sessions or so, these stocks are moving far more than they’re priced to move.
When stocks move 4% on average over four days but are only priced for 2% to 3%, it creates a very specific environment — one where directional plays are far more advantageous than premium plays.
Even names that appear to have excess premium aren’t offering much real edge. A couple of financials, like Morgan Stanley (MS) and Bank of America (BAC), only look elevated because they have earnings around the corner.
The usual high-beta names like Palantir (PLTR), Meta Platforms (META) and Advanced Micro Devices (AMD) are underpriced too.
Why the Strategy Has to Shift
This is where the risk-reward dynamics really matter. When options don’t have excess premium baked in, it doesn’t make sense to lean into premium-selling strategies because you’re simply not getting paid enough for the risk you’re taking.
Selling premium only works when the market is willing to compensate you appropriately, and right now it’s not.
Instead, this is an environment where directional strategies shine. When stocks are consistently moving more than they’re priced to move, you want to be on the right side of that move — not collecting pennies while the stock runs past your strikes.
The edge shifts away from harvesting inflated premium and toward taking calculated directional shots where the actual movement is giving you more than the pricing models expect.
This is exactly why my discretionary playbook has been at its lowest point in nearly two months.
I’m not going to force premium plays when the market environment doesn’t justify them.
The smarter move is to stay selective, lean directional and wait for conditions to shift back toward more favorable premium dynamics.
Markets always change, and they’ll change again.
But until options start pricing in the real movement we’re seeing, discipline matters more than volume.
Nate Tucci
Tucci Trades
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
