Options trading volatility is one aspect in options trading that can aid traders in earning huge income.
However, be reminded that not all volatilities effect the same changes, as such are not equal in terms of impacts and causes on trade.
Many retail traders knew about HV (historical volatility) and IV (implied volatility).
HV measures past price movements while IV measures expected prices by means of estimates.
Learning these two can actually help traders in knowing when and how to invest, thus gaining more profits.
One of the most common types of HV is Statistical Volatility, where underlying assets and its value are determined over a definite period or number of days.
'Finite and Adjustable'- these are what SV naturally means, as time averages and momentum regarding options are being considered.
As for IV or Implied Volatility, price movements are further identified using varied estimates.
Meaning, these estimates refer to the expectations of market traders themselves.
The so-called 'bid-ask' estimates are also considered in IV, where buyers and sellers may impact the value of said underlying assets.
Options Trading Volatility is indeed a crucial and uneasy concept, especially for rookie traders.
Not only are the ideas diverse, the principles behind each can be overwhelming.
As part of your initial training in options trading, it is advisable to learn enough if not more about trading lingo and terms.
So, how do options trading volatility affects a trader's potential profits? There is such a thing as wrong use of HV and IV crossovers in options trading volatility.
This is said to be an improper trading technique as it clearly affects your decision making skills.
As professionals stress, volatility can cause prices to go up and down, depending on buyers and sellers decisions.
Thus, it is imperative for traders to know when to buy or sell their options.
To sell an overpriced option causes IV or implied volatility to go still.
The same effect is likewise expected if a trader opts to buy underpriced assets.
This type of scenario proves to be unlikely, particularly with high-liquid investments.
However, it only shows that prices and volatility affect each other and both have impacts on your profits as a retail trader.
Learning how to trade options with the volatility concept can be used to your advantage.
Many have also opted to focus on Implied Volatility instead of HV to consistently earn profits.
Others have likewise removed the concept of HV in their trading techniques list.
Either way may work for other traders, but profits in options trading can only be assured, once you know what to buy/sell and make the most out of your chosen investment.