Volatility Is Back — Here’s How Options Traders Take Advantage

By Lawrence G. McMillan

Predicting stock prices consistently is difficult.

Predicting volatility behavior, however, is often easier.

That is why many professional option traders focus more on volatility than on price direction.

Every option price reflects a forecast about future volatility. Market makers and traders must estimate how much the underlying asset will move over time, and those estimates are reflected in the option’s implied volatility.

When those forecasts are inaccurate, trading opportunities arise.

In this webinar, I explain how option traders identify and exploit those opportunities.

The presentation covers several important concepts, including:

• The difference between historical volatility and implied volatility
• How volatility skew develops in options markets
• How to determine when options are cheap or expensive relative to their own history
• Strategies designed to capitalize when volatility becomes mispriced

Several option strategies are discussed, including:

• Backspreads
• Ratio spreads
• Calendar spreads
• Straddles and other volatility-based trades

Periods of rising volatility often create more opportunities for option traders, particularly when volatility assumptions embedded in option prices become distorted.

Understanding how volatility behaves — and recognizing when options are mispriced — can provide traders with an important edge. 

The full webinar video is available above for paid subscribers of The Option Strategist Substack and for purchasers of the 14 Seminar Home Study Course (watch here).