Options Volatility: Conclusion
AAA
  1. Option Volatility: Introduction
  2. Option Volatility: Why Is It Important?
  3. Option Volatility: Historical Volatility
  4. Options Volatility: Projected or Implied Volatility
  5. Options Volatility: Valuation
  6. Option Volatility: Strategies and Volatility
  7. Option Volatility: Vertical Skews and Horizontal Skews
  8. Option Volatility: Predicting Big Price Moves
  9. Option Volatility: Contrarian Indicator
  10. Options Volatility: Conclusion

Options Volatility: Conclusion

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).

  1. Understanding the difference between historical and implied volatility
  2. Applying historical and implied volatility to pricing and valuation determination
  3. Getting a feel for how volatility impacts option strategies' potential risk and reward
  4. Acquiring insights into implied volatility skews
  5. Using options volatility to predict price moves
  6. 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.




Online sources of information include the Chicago Board Options Exchange website, where you can get intraday and end-of-day quotes for the VIX (implied volatility index) and other volatility indexes on major stock market averages. Additional volatility data is available at the CBOE website for individual stocks.


  1. Option Volatility: Introduction
  2. Option Volatility: Why Is It Important?
  3. Option Volatility: Historical Volatility
  4. Options Volatility: Projected or Implied Volatility
  5. Options Volatility: Valuation
  6. Option Volatility: Strategies and Volatility
  7. Option Volatility: Vertical Skews and Horizontal Skews
  8. Option Volatility: Predicting Big Price Moves
  9. Option Volatility: Contrarian Indicator
  10. Options Volatility: Conclusion
RELATED TERMS
  1. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  2. Short Put

    A type of strategy regarding a put option, which is a contract ...
  3. Wingspread

    To maximize potential returns for certain levels of risk (while ...
  4. Volatility Smile

    A u-shaped pattern that develops when an option’s implied volatility ...
  5. Nadex

    Nadex stands for the North American Derivatives Exchange, a regulated ...
  6. Exchange-Traded Binary Options

    Exchange-traded binary options, regulated by the CFTC, let you ...
  1. What is a volatility smile?

    Discover what options traders mean when they refer to a "volatility smile," and learn why a volatility smile's existence ...
  2. Is short selling ethical?

    Understand the concept and practice of short selling, and examine the ethical questions that some investors raise in regard ...
  3. What kinds of restrictions does the SEC put on short selling?

    Learn about the rules and regulations on short selling enforced by the U.S. Securities and Exchange Commission, or SEC, including ...
  4. When short selling, how long should you hold on to a short?

    Explore the reasons for short selling and the various factors that influence how long an investor may wish to maintain a ...

You May Also Like

Related Tutorials
  1. Options & Futures

    Binary Options Tutorial

  2. Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

  3. Active Trading Fundamentals

    Introduction to Stock Trader Types

  4. Options & Futures

    Options Pricing

  5. Options & Futures

    How To Place A Covered Call Strategy With optionsXpress

Trading Center