Volatility Quote Trading

DEFINITION of 'Volatility Quote Trading'

A method of quoting option contracts whereby bids and asks are quoted according to their implied volatilities rather than prices.

BREAKING DOWN 'Volatility Quote Trading'

Used mainly by sophisticated investors, volatility quotes benefit those investors who trade upon volatility rather than price. These investors are typically interested in the likelihood of a contract moving up or down in price rather than in its actual cost.

RELATED TERMS
  1. Implied Volatility - IV

    The estimated volatility of a security's price.
  2. Volatility Arbitrage

    Trading strategies that attempt to exploit differences between ...
  3. Firm Quote

    A price quote on a security, made by a dealer or market maker, ...
  4. Level 3

    A trading service consisting of everything in Level 2, plus the ...
  5. Handle

    The whole number part of a price quote. In a quote the handle ...
  6. Make A Market

    An action whereby a dealer stands by ready, willing and able ...
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RELATED FAQS
  1. What is an option's implied volatility and how is it calculated?

    Learn what implied volatility is, how it is calculated using the Black-Scholes option pricing model and how to use a simple ... Read Answer >>
  2. What is the relationship between implied volatility and the volatility skew?

    Learn what the relationship is between implied volatility and the volatility skew, and see how implied volatility impacts ... Read Answer >>
  3. How does implied volatility impact the pricing of options?

    Learn about two specific volatility types associated with options and how implied volatility can impact the pricing of options. Read Answer >>
  4. Can delta be used to calculate price volatility of an option?

    Learn how implied volatility is an output of the Black-Scholes option pricing formula, and learn about that option formula's ... Read Answer >>
  5. Why are the bid prices of T-bills higher than the ask prices? Aren't bids supposed ...

    Yes, you are correct that the ask price of a security should typically be higher than the bid price. This is because people ... Read Answer >>
  6. How is implied volatility used in the Black-Scholes formula?

    Learn how implied volatility is used in the Black-Scholes option pricing model, and understand the meaning of the volatility ... Read Answer >>
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