Using Option Greeks: Implied Volatility - Part One
Tuesday, 16 September 2008 14:16 Written by John Jagerson
In my opinion implied volatility (IV) is the most useful of the option greeks. Implied volatility can be used to adjust your risk control, trigger trades and in a future video I will show you how you can actually trade options on the market's own implied volatility level. Implied volatility is relatively simple to understand but it hard to predict. It changes as investor sentiment changes and can be very sensitive to the overall market environment. In this series we will be talking about IV and how it can be used to forecast market direction and make trading decisions.implied volatility

Implied volatility is a measure of what investors think about future volatility. This means that it reflects what traders "think" about the potential for the underlying stock or index. That information is extremely useful when you can see and analyze those changes over time. Implied volatility will rise when traders are concerned about risk or are becoming very fearful. Conversely, implied volatility will fall when investors are very confident or bullish. This matters to option traders because an increase in implied volatility causes a rise in option premiums. That is bad for option buyers but can be good for sellers. When implied volatility is falling and traders are becoming more bullish, option prices fall and being a call buyer may be a better alternative than being a put seller.

In this video we will talk about how implied volatility changes prices and why this matters to investors.

Need help understanding how to buy or sell calls? Click here for more information.

Do you have more questions about implied volatility? Ask us in the forums.

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Comments Add New
JIgnesh  - Its very interesting and Useful   |2009-08-17 03:33:22
hi
Its veery good and useful 4 me but plz improve the quality of clips becuse
sometimes its going stuck
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