Volatility is a major buzzword on Wall Street, but what does it mean for your portfolio? When you're trading options, the worst mistake you can make is to underestimate the impact of volatility on your trades. Before you become the unwitting victim of a volatility crush, study the volatility basics on these pages to become an informed, aware options trader.
Start with the basics. Here, you'll learn the two main types of volatility -- historical and implied -- and find out the role each should play in your trading decisions.
You may already know that implied volatility plays a primary role in determining the price you pay to acquire your option. As a result, fluctuations in implied volatility can determine whether or not your options strategy ends up a winner or a loser, even if the stock moves exactly as you predicted. Learn how to dodge the dreaded volatility crush, and check out our quick primer on VIX options.
The CBOE Volatility Index (VIX) might be the market's benchmark gauge for volatility, but the "fear index" is just the tip of the iceberg for the volatility complex. Find out which volatility vehicles you should be tracking, and how you should trade them -- if at all.
The straddle and strangle are two of the best-known volatility plays in the world of options. Before you attempt one of these two-legged trades, learn the pros and cons of buying double premium.
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