By John Summa, CTA, PhD, Founder of OptionsNerd.com
Trading options without an understanding of volatility is like operating on a patient without knowing what role blood flow plays in the human body. Unfortunately, too many traders launch into trading without the proper knowledge of volatility.
A misunderstanding of volatility's dynamics can lead to painful losses, which otherwise might not have been experienced. A proper understanding of volatility, on the other hand, can inject enhanced profit potential into strategies.
Toward this end, this tutorial has highlighted the following essential areas of volatility to provide a basis to explore the subject in greater depth later (see suggested resources below).
 Understanding the difference between historical and implied volatility
 Applying historical and implied volatility to pricing and valuation determination
 Getting a feel for how volatility impacts option strategies' potential risk and reward
 Acquiring insights into implied volatility skews
 Using options volatility to predict price moves
 Analyzing investor crowd psychology with options implied volatility (VIX)
To further develop you knowledge of volatility, check out "Option Volatility & Pricing: Advanced Trading Strategies and Techniques" by Sheldon Natenberg (second edition, 1994). Another recommended test is "Options As A Strategic Investment (fourth edition, 2002) by Lawrence Mcmillan. These two books should provide all the necessary concepts needed to fully understand volatility in all aspects of trading options.
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