I keep coming across the term implied volatility but I am still confused. I checked out some articles but they are too technical.
What does implied volatility really mean? How does it impact my trading on a daily basis?
Should I pay attention to it or just concentrate on price movement?
Think of it as the market’s fear meter. When everyone expects crazy price swings, implied volatility shoots up and options get expensive.
I learned this the hard way buying calls during earnings season. Paid huge premiums because IV was through the roof, then got crushed even when I picked the right direction.
Now I sell options when IV is high instead of buying them.
Implied volatility measures market expectations for future price swings.
• High IV = expensive options, big moves expected
• Low IV = cheaper options, smaller moves expected
Track it alongside price. Affects option premiums directly.
Markets price options based on expected movement size, not direction. Made 73% last month selling high IV plays.
Implied volatility is like a gauge of how much price changes are expected in the future. High levels indicate larger potential price swings. When it’s low, price movements are expected to be smaller.
In daily trading, higher implied volatility usually leads to higher option prices. Lower levels might mean options are cheaper but could offer smaller gains.
While price movement remains crucial, understanding implied volatility adds context to the costs involved in trading options.