5 Strategies for Trading Volatility With Options
Seven factors determine the price of an option. Six have known values, and there is no ambiguity about their effects in an option pricing model. The seventh variable, volatility, is only an estimate – and yet, it is the most important factor in determining an option’s price.
There are various strategies traders use to generate returns when trading volatility. Below, we discuss some of the more popular ones.
Key Takeaways
- Options prices depend on the estimated future volatility of the underlying asset.
- While other inputs to an option’s price are known, different investors may expect different levels of volatility.
- Options traders can make a profit trading volatility but this requires a strategic approach.
- Common strategies to trade…
