How Does the Seller's View on Implied Volatility Influence the Decision to Sell OTM Options? ▴ Learn

How Does the Seller’s View on Implied Volatility Influence the Decision to Sell OTM Options?

A seller of OTM options generally prefers a high implied volatility (IV) environment, especially if they believe the IV is inflated and will soon drop (a volatility crush). High IV inflates the time value of the OTM option, allowing the seller to collect a larger premium for the same level of risk.

They are essentially betting that realized volatility will be lower than the market's implied volatility.

What Is ‘IV Crush’ and How Does It Create Risk for Options Buyers Who Pay a Wide Bid-Ask Spread?

How Does a “Volatility Crush” Affect an Option’s Time Value?

How Quickly Can Implied Volatility Typically Drop after a Major Event Has Passed?

Explain the Term ‘Volatility Crush’ and Its Impact on Option Premiums