On this episode of Trading For Newbies, Ryan and Beef explain implied volatility and its relationship to option prices.
Implied Volatility (IV) is a measure of the annualized expected one standard deviation range of a stock, based on the prices of its options.
Typically, high option prices equal high implied volatility and low option prices equate to low implied volatility. By comparing the current implied volatility of a stock against the range that it's been in over the past year we can gain a general sense of whether or not the current options are expensive or cheap. This helps us in determining whether it's a better time to sell or buy options as part of our trade.Episode Contents
- Implied Volatility
- Determining if option prices are high or low
- What we want to happen after we place our trade
About Trading For Newbies
This series will educate you, the beginning trader on the basics of options trading and the tastytrade approach to trading. Our goal is to get you to the point where you will be able to actively find opportunities in the market, enter and exit trades, and clearly articulate what you are doing throughout the process.