1. How to Use Implied Volatility to Your Advantage.
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Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. All Rights Reserved. Applicable portions of the Terms of use on tastytrade. Watch Now. Implied Volatility Implied volatility commonly referred to as volatility or IV is one of the most important metrics to understand and be aware of when trading options.

Why is this important?

Where does implied volatility come from? (hint: not the stork)

We need to compare the current IV value to this range to understand how the current IV ranks in relation to its historical IV range. IV Rank is used to determine when option pricing is relatively pricey or cheap compared to its historic implied volatility for a specific security. When IV Rank approaches a value of greater than 50 then option sellers can use this to their advantage to take in rich options premium with the expectation that this implied volatility will decrease.

Any value above the 50 threshold is where the overestimation of actual volatility thrives and options sellers can take in rich premiums with the expectation that IV will fall thus the option itself will fall in value. Rich premiums can be paid out to option sellers with the expectation that volatility will revert to its mean. Allowing the option to decrease in value and expire worthless at expiration even if the underlying stock moves up, sideways or down without breaking through the strike price in a high probability manner.

Selling options in these high IV Rank situations serve as a two-fold benefit since time premium is always evaporating and IV will likely revert to its mean and fall.

Even if the stock moves up, down or trades sideways without breaking through the strike, the option will be profitable as time and IV fall. The high IV Rank provides rich premium and as the option life-cycle unfolds and this volatility decreases, the option time value implodes and the option decreases in value allowing profits to be realized earlier in the life-cycle without waiting until expiration of the contract.

• forex source strategy;
• NSE Options with High and Low Implied Volatility - EQSIS - Equity Research Firm.
• Implied Volatility in Stock Options.

Leading to consistent income generation in a high-probability manner without guessing which way the stock will move. The number of consecutive daily moves in either direction is nearly evenly distributed thus moving in a standard distribution over time. The only way to profit from this even distribution and behavior of the market is via options trading.

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Options allow one to dictate his probability of success and thus profit without estimating what direction the market will move. Options trading isn't about whether or not the stock will go up or down, it's all about the probability of the stock not moving up or down more than a specified amount based on probabilities respective to the underlying market or equity.



Options are a bet on where the stock won't go, not where it will go. Based on all historical moves and magnitude of moves a stock has made in the past, its future absolute move positive or negative within standard deviations are predicted.

Viewing Options Volatility Through a Different Set of Lenses

Implied volatility IV is used to predict the future magnitude move of the stock over a given timeframe. High IV Rank leads to overpriced or richly valued option contracts where option sellers can capitalize since implied volatility is nearly always overstated and the actual move of the underlying stock will be less volatile than predicted.



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Delta is a proxy for probability of success thus a delta of Translating this into standard deviations, one standard deviation captures Coupling the probabilities with rich IV in an option selling environment is the key to options success. Daily trade notification service removes the guess work of selecting tickers to trade. Perfect for those seeking to remove the guesswork in options trading.