OptionVolatility - Option Volatility By John Summa, CTA,...

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Option Volatility By John Summa , CTA, PhD, Founder of OptionsNerd.com http://www.investopedia.com/university/optionvolatility/default.asp Thanks very much for downloading the printable version of this tutorial. As always, we welcome any feedback or suggestions. http://www.investopedia.com/contact.aspx Table Of Contents 1) Option Volatility: Introduction 2) Option Volatility: Why Is It Important? 3) Option Volatility: Historical Volatility 4) Option Volatility: Projected or Implied Volatility 5) Option 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) Option Volatility: Conclusion Introduction Many beginning options traders never quite understand the serious implications that volatility can have for the buying strategies they are considering. Some of the blame for this lack of understanding can be put on the poorly written books on this topic, most of which offer options strategies boilerplate instead of any real insights into how markets actually work in relation to volatility. However, if you're ignoring volatility, you may only have yourself to blame for negative surprises. In this tutorial, we'll show you how to incorporate the "what if" scenarios regarding changing volatility into your trading. Clearly, movements of the underlying price can work through Delta (the sensitivity of an option's price to changes in the underlying stock or futures contract ) and impact the bottom line, but so can volatility changes. We'll also explore the option sensitivity Greek known as Vega , which can provide traders with a whole new world of potential opportunity. (Page 1 of 28) Copyright © 2002, Investopedia.com - All rights reserved.
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Investopedia.com – the resource for investing and personal finance education. Many traders, eager to get to the strategies that they believe will provide quick profits, look for an easy way to trade that does not involve too much thinking or research. But in fact, more thinking and less trading can often save a lot of unnecessary pain. That said, pain can also be a good motivator, if you know how to process the experiences productively. If you learn from your mistakes and losses, it can teach you how to win at the trading game. This tutorial is a practical guide to understanding options volatility for the average option trader. This series provides all the essential elements for a solid understanding of both the risks and potential rewards related to option volatility that await the trader who is willing and able to put them to good use. Why Is It Important? Volatility changes can have a potential impact - good or bad - on any options trade you are preparing to put do. In addition to this so-called Vega risk/reward, this part of the options volatility tutorial will teach you about the relationship between historical volatility (also known as statistical, or SV) and
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OptionVolatility - Option Volatility By John Summa, CTA,...

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