FOR BEST OPTION TIPS FILL UP THE FORM GIVEN TO YOUR RIGHT SIDE>>>>
The last several months, the market has shown some good movement with
some wild swings. The S&P 500 and Dow set their all-time highs once
again, and then promptly moved lower. Now we are about to start the
next earnings season and the roller-coaster ride may continue. It is
important for option traders to understand one of the most important
steps when learning to trade options;
analyzing implied volatility and historical volatility. This is the way
option traders can gain edge in their trades. But analyzing implied
volatility and historical volatility is often an overlooked process
making some trades losers from the start. An option trader needs to look
back at the last couple of months of option trading to see how
volatility played a crucial part in option pricing and how it will help
them going forward.
Implied Volatility and Historical Volatility
Historical volatility is the volatility experienced by the
underlying stock, stated in terms of annualized standard deviation as a
percentage of the stock price. Historical volatility is helpful in
comparing the volatility of a stock with another stock or to the stock
itself over a period of time. For example, a stock that has a 30
historical volatility is less volatile than a stock with a 35 historical
volatility. Additionally, a stock with a historical volatility of 45
now is more volatile than it was when its historical volatility was,
say 30.