Explore Your Options by Tom Gentile
VIEWS ON VOLATILITY
Is it important to look at the volatility chart of an option that you would like to buy or sell? And if you are trying to determine whether volatility is high or low before you buy an option?
Option traders use different tools to measure volatility. Some option analysis software allows traders to plot historical volatility (HV) and implied volatility (IV). Both are helpful when looking at possible trading opportunities.
Historical volatility, for example, tells us how a stock (index, futures, exchange traded fund, and so on) has been behaving. If a stock is volatile, like shares of some of the banks recently, it will have high historical volatility. Stocks that trade quietly and in a range, like utilities, have low historical volatility.