One of the most cited criticisms of technical analysis is it often uses lagging indicators as a means of inferring future market direction. This is similar to the use of historical volatility in predicting future volatility – it is a backward looking indicator since it is the volatility of the stock over the past month. Instead, we use Implied Volatility which is a forward looking measure that is calculated using the price paid for options.
Today, Tom Sosnoff and Tony Battista look at the difference between historical and implied volatility. The guys then look at how often implied volatility is overstated compared to the historical volatility. Finally the guys explain how we can use this in our trading strategy and how it relates to selling premium!