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.

  1. Volatility Arbitrage

    Volatility arbitrage is a trading strategy that attempts to profit ...
  2. Volatility Swap

    A forward contract whose underlying is the volatility of a given ...
  3. Handle

    The whole number part of a price quote. In a quote the handle ...
  4. Volatility Smile

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

    A type of quote that gives both the bid and the ask price of ...
  6. Backpricing

    A pricing method used in specific futures contracts whereby the ...
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  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. 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 >>
  4. 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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