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.

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RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. If the stock market is so volatile, why would I put money into it?

    Learn how the up and down movement of price, known as volatility, can benefit short-term investors and why long-term investors ... Read Answer >>
  4. What do the bid and ask prices represent on a stock quote?

    Learn what the bid and ask prices mean in a stock quote. Find out what represents supply and demand in the stock market and ... Read Answer >>
  5. What do the numbers that follow the bid and ask numbers in stock quotes represent? ...

    These numbers are called the bid and ask sizes, and represent the aggregate number of pending trades at the given bid and ... Read Answer >>
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