If you do not understand implied volatility and you are buying put or call options or some combination, you have been warned!
The market continues to move very fast, has large swings and one would think that makes it an excellent time to buy options for huge gains, right? Our research team believes that large swings will be here for a while. Once you understand the significant role Volatility plays in Option Pricing, you may want to avoid this investment construct for some time to come.
The is at an extreme level and has been over 50 only seven times in the past 25 years based on a daily closing price. It is evident from the last two trading sessions that investment sentiment has been bearish and option puts make money if price declines, which has been the popular trade of choice until now.
What many options traders do not understand, however, is that the price of options is configured using implied volatility.
The more volatility, the more expensive the options become to…
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