I have some trading experience but I want to learn about options. Implied volatility comes up a lot but I find it confusing.
I read some articles, but they are really technical. How does it impact my trades and why does it matter?
Got crushed by IV on my second month trading options. Bought Apple calls before earnings - nailed the direction but still lost 60%.
IV’s basically market fear. More fear means higher option prices, even when nothing else moves.
Now I always check IV rank before trading.
Implied volatility reflects market expectations for a stock’s price movement. High implied volatility leads to higher option prices due to increased speculation.
Conversely, low implied volatility results in lower option prices. A key point to remember is that implied volatility can drop sharply after significant events, affecting your trades even if your predictions about the direction of the stock are correct.
Pay attention to timing, as shifts in implied volatility can significantly impact your results.
Implied volatility shows how much the market thinks the stock will move. It’s key for options pricing.
IV crush can erode profits when implied volatility declines after earnings or major events. Check IV rank before entering positions to avoid rapid losses.
IV indicates market expectations for stock movement. High IV means options are pricier while low IV means they are cheaper. A key detail is with high IV options; even if you predict direction correctly, you could lose money if IV drops suddenly. The best approach is to buy options when IV is low and sell them when it’s high. Always look at the IV percentile to understand your position compared to the market’s recent history.