Article High Volatility in the Stock Market Or Is It?

T2W Bot

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Currently the implied volatility levels in the stock market are much higher than they have been for quite some time. What does this mean for our option trading?
One of the main factors in the profitability of our option trades is the “inflatedness” of the prices of the options. When the consensus of option traders is that stock prices will move rapidly, then the prices of options will be inflated. We say that “implied volatility” is at a high level. At such times, as a general rule we want to use options strategies in which we sell options short. We then hope to buy them back later at lower prices, if we have to buy them back at all.
In times when option prices are deflated (implied volatility at a low reading), we use different strategies. We buy options rather than selling them short, in hopes that they will re-inflate to more normal levels. This deflation and re-inflation of option prices happens in cycles. Those cycles are related only loosely to the up-and-down cycles in the...

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