Options Volatility: Conclusion
  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. Implied Volatility - IV

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

    Trading strategies that attempt to exploit differences between ...
  3. VIX - CBOE Volatility Index

    The ticker symbol for the Chicago Board Options Exchange (CBOE) ...
  4. VIX Option

    A type of non-equity option that uses the CBOE Volatility Index ...
  5. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  6. Volatility Smile

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RELATED FAQS
  1. 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 >>
  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. 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 >>
  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. 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 >>
  6. What is the CBOE Volatility Index? (VIX)

    Find out why investors and analysts use the Chicago Board Options Exchange Volatility Index, or VIX, to measure the market's ... Read Answer >>

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