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Implied volatility is a powerful but often misunderstood metric that plays a major role in options trading. Implied volatility doesn’t tell you what’s going to happen to an option’s price ...
Implied volatility can be a confusing concept for investors who are just starting to trade options. While the idea of volatility is easy to understand, trying to estimate it is more difficult. ...
A call option is trading at $1.50 with the underlying trading at $42.05. The implied volatility of the option is determined to be 18.0%. A short time later, the option is trading at $2.10 with the underlying at $43.34, yielding an implied volatility of 17.2%. Even though the option's price is higher at the second measurement, it is still ...
To an option trader engaging in volatility arbitrage, an option contract is a way to speculate in the volatility of the underlying rather than a directional bet on the underlying's price. If a trader buys options as part of a delta-neutral portfolio, he is said to be long volatility. If he sells options, he is said to be short volatility. So ...
The volatility is the degree of its price fluctuations. A share which fluctuates 5% on either side on daily basis has more volatility than stable blue chip shares whose fluctuation is more benign at 2–3%. Volatility affects calls and puts alike. Higher volatility increases the option premium because of the greater risk it brings to the seller.
The Volatility Index futures have become seriously traded in recent days as traders and hedgers alike, use it as a hedge against their positions and there is a record amount of money that has ...