Hello from the road, folks. I’m doing some pretty hard-core traveling for the next few weeks, so I think now’s a great time to re-introduce a few “golden oldies” from this blog on classic options topics. This week, let’s dig into volatility. It’s a buzzword you’ve probably heard a million times in trading circles, but maybe you could stand to refresh yourself on what it really means, how it’s calculated, and (most importantly) how it can be used to make smarter trading decisions?

We got you covered, people. Start out with this intro post on volatility, then check out the followup posts on calculating implied volatilty – that’s in two parts, actually. We followed that up with two trading examples in which we use IV to trade a super-volatile stock like Google and then something less volatile, in this case a call credit spread on the Spiders (SPY), the ETF that follows the S&P 500 index. (This is Google and the S&P circa February 2006, mind you – talk about a golden-oldie - but the principle still holds.)

And let me know what you think! You wouldn’t believe how many interesting questions I’ve fielded over the years about volatilty, so feel free to chime in anytime.

Regards,
Brian (OG)

[image: jukebox heroes by iboy_daniel on flickr]

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or probability of reaching a specific price point there is no guarantee that this forecast will be correct.

Any strategies discussed or securities mentioned, are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities.