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The Driver of Implied Volatility

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

We can make use of how markets react to IV rushes by taking advantage of more expensive options and holding directional positions to hedge the IV exposure. And to do that, we need to know more precisely how markets react to a rise in ‘fear’ or in other words, an implied volatility increase.

According to our study, for a 25% increase in implied volatility, stock prices fell by 3.5%, gold fell by 1.1% and crude oil fell by 6.2%, on average. Using this information, we can sell certain options when entering trades to utilize higher prices, and we can also hedge our IV exposure with directional positions.

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