Hey did you take a look at Saxo in the end. You know that the option premium that you get in expressed as a pip value and depends on volatility; the higher the volatility, the higher the premium.
So a GBPUSD Put might be sold for 0.0022 or 22 pips for example and the premium you get would be:
22 pips x PnL1Pip1Lot x LotSize.
So you really want to be buying an option when the volatility and therefore premium is low, and selling an option when the volatility and therefore premium is high. The premium price is derived by the market based on the future volatility ‘Implied’ by the supply and demand dynamics, however there is an intrinsic (real value) volatility that correlates with the implied volatility which is usually the historic volatility over the last 20 trading days annualised.
Anyway I say this because I am writing an indicator that takes the current volatility reading and tells you how many sigmas it is from the average. The idea would be to trigger prospect option sell signals when the current volatility is at a given threshold, say 1 sigma above normal and decreasing. This is where the option price will be highest and the future risk would be decreasing, since future volatility and price movement would be decreasing.
The problem with this is the directional component of the trade. If you think about it, you are trying to sell an option in the opposite direction to market movement as in the example above. The case above is a particularly good example but I think in most cases the volatility is usually higher well into the price move, just about when you are expecting the market to either correct or reverse through the moving average. So a breakout from low volatility, to a correction or reversal where the volatility is now higher.
That means that although the option is more expensive in these areas because of the higher volatility, you have more directional risk. Anyway, all the options in the chain of strike prices increase their premium when the volatility is high, so you could choose to use an indicator to provide signals when the volatility is above 2 sigma from the average volatility over the last 20 trading days for example, when the premiums will be highest.
I suppose what you really want is the combination of high vols, with a situation as in the example when this is due to a sudden rapid price movement in one direction or the other. So you might want to look at the absolute vols and the rate of change of vols.