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Most traders think options move because the stock moves. That’s the rule we all learned — stock goes up, calls go up, stock goes down, puts go up.
But there’s another path to big options wins that works completely differently — and it’s been studied by universities, hedge funds and the Federal Reserve along with the creator of the VIX Volatility Index, Robert E. Whaley, when he was working with the Chicago Board Options Exchange (CBOE).
I’m talking about the implied volatility (IV) ramp phenomenon, where implied volatility skyrockets over the course of a few days due to a demand shock created the moment a large order, or an “AlphaOption” as I call them, hits the market.
When that surge of demand hits, market makers must rapidly adjust pricing, and IV begins climbing fast — even when the stock barely moves.
Here’s the part that matters: IV is directly tied to the price of the option.
So when we catch one of these demand shocks early, we’re riding the IV ramp, not waiting for the stock to move.
Real Examples, Real Returns
Let me show you what this looks like in practice.
On Nov. 11, a $7.7 million AlphaOption hit Merck (MRK).
IV on these options began rising immediately, taking the value up with it.
Traders who got in at $2.43 per contract saw a 140% return as the IV ramp played out.
Intel (INTC) delivered the same pattern.
On Dec. 29, a $532,000 AlphaOption hit, and because it was positioned perfectly to spark a fresh demand shock, the IV ramp began almost immediately.
As IV climbed day after day, the option ran from $1.80 to $6.43 — a 495% move in 15 days.
Pure Cycle (PCYO) showed how dramatic these ramps can be.
A 265% overnight return came almost entirely from IV going parabolic, even though the stock moved about 2%.
These moves are of course bigger than most but in each case, the stock movement was secondary.
The real driver was the surge in implied volatility triggered by that initial demand shock.
Why It Accelerates
When a big order hits the options market, thousands of traders — including major trading desks — rush toward it.
As they pile in behind the initial AlphaOption, the additional demand accelerates the IV ramp, pushing option prices higher and faster.
That’s what happened with PCYO.
As chatter about the unusual activity spread, the rush of traders crowding in amplified the IV spike and sent the option soaring overnight.
This is why timing is everything.
When an AlphaOption hits and my Alpha Flow Dashboard flags it, that means it’s uniquely positioned to kick-start the IV ramp almost immediately.
Get in early and the rising IV over the next few days does the heavy lifting.
Miss it and you’re watching someone else catch the move.
To better trading,
Alex Reid
WealthPin
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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Disclaimer: We develop tools and strategies to the best of our ability, but no one can guarantee the future. There is always a risk of loss when trading past performance is not indicative of future results. The profits and performance shown are not typical and you may lose money. Since this is a tool designed to help traders make informed trading decisions the results will vary for each individual user as there are multiple trades to choose from.
