The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Do you want high or low volatility when trading options?” The simple answer to this is you want both. Both environments, high and low volatility, have a positive expected outcome for the implied volatility risk premium, this idea that people are bad at predicting where things are going to go and they over-exaggerate in both directions and as a result, long-term, option pricing is always overstated by some margin. Now, we do find that generally, in higher periods of implied volatility, that overstatement or that exaggeration might be a little bit more, but it’s still prevalent and it’s still there in low volatility. My answer to this question is it doesn’t matter really where volatility is. Volatility can be used as a gauge for position sizing. It could be used for a gauge of potential volatility in your account and your positions as you win and lose on positions working towar