Stocks & Commodities V. 33:08 (26–31): Judging Volatility by Chris Lindgren
Product Description
Judging Volatility by Chris Lindgren
Ignoring implied volatility can be a costly mistake for option traders, which is why assessing it is critical. Here is a look at some practical methods to measure implied volatility and get a better idea of which way option prices will move.
As an option trader, implied volatility (IV) is important to me. All option-pricing models use an estimated volatility to value a security’s options. Implied volatility, however, is derived from current option prices. It is the market’s projection of volatility between now and expiration. The IV tells me the price of an option. Just as a stock trader evaluates price to determine value, I gauge an option’s price with IV. If IV is too high, the options are overpriced; if it’s too low, the options are cheap. The strategy I choose will be determined by my assessment of IV. By itself, any given figure for IV is meaningless. Just as with stock price, IV needs to be evaluated in terms of where it has been and where it may be going. Assessing IV is critical, whether I am placing a delta neutral trade or trading directionally.
Ignoring implied volatility can be a costly mistake for option traders, which is why assessing it is critical. Here is a look at some practical methods to measure implied volatility and get a better idea of which way option prices will move.
As an option trader, implied volatility (IV) is important to me. All option-pricing models use an estimated volatility to value a security’s options. Implied volatility, however, is derived from current option prices. It is the market’s projection of volatility between now and expiration. The IV tells me the price of an option. Just as a stock trader evaluates price to determine value, I gauge an option’s price with IV. If IV is too high, the options are overpriced; if it’s too low, the options are cheap. The strategy I choose will be determined by my assessment of IV. By itself, any given figure for IV is meaningless. Just as with stock price, IV needs to be evaluated in terms of where it has been and where it may be going. Assessing IV is critical, whether I am placing a delta neutral trade or trading directionally.
FOR THOSE ORDERING ARTICLES SEPARATELY:
*Note: $2.95-$5.95 Articles are in PDF format only. No hard copy of the article(s) will be delivered. During checkout, click the "Download Now" button to immediately receive your article(s) purchase. STOCKS & COMMODITIES magazine is delivered via mail. After paying for your subscription at store.traders.com users can view the S&C Digital Edition in the subscriber's section on Traders.com.
| Take Control of Your Trading. |
| Professional Traders' Starter Kit |
| All these items shown below only $299.99! |
| Click Here to Order |