Been trading for a while but I still struggle to understand implied volatility. I see it mentioned all the time but no one puts it in simple terms.
I have lost some trades by ignoring it completely. I need to learn what it means to avoid further losses.
If someone could explain it without complicated math, that would be great.
Implied volatility shows how much a stock’s price might swing. Higher IV means options cost more due to expected movements.
Implied volatility reflects the market’s expectation of stock price movements. When traders expect chaos, the price of options increases.
Buying options before major news can be risky, as premiums rise due to high demand. It’s wise to wait for calmer times when implied volatility is low, making options more affordable. This way, time decay and potential drops in volatility won’t hurt as much.
Implied volatility is the market’s fear gauge. When traders expect big moves, options get pricey.
I learned this the hard way last month - bought calls before earnings with 80% IV. Stock went up like I wanted, but I still lost money because IV crashed to 40% overnight.
Now I always compare current IV to the past few weeks before jumping into any options trade.
Volatility crush occurs when implied volatility drops after major events. Options lose value even if the stock moves favorably. Always check the implied volatility percentile before buying.
Implied volatility indicates how much the market thinks a stock will move. High implied volatility means options are more expensive because traders expect big price swings. Low implied volatility means options are cheaper since the market expects stability. Focus on buying options when implied volatility is low and selling when it’s high. I made the mistake of buying options with high implied volatility expecting a move, but they crashed because of the drop in IV. Always consider implied volatility before entering a trade.