This article was originally published in The Option Strategist Newsletter Volume 4, No. 13 on July 13, 1995.
Most option traders quickly realize that time is a very heavy factor weighing on the price of an option. This lesson often is driven home after buying an option and losing money.
This article was originally published in The Option Strategist Newsletter Volume 4, No. 4 on February 23, 1995.
If it seems that we preoccupied with volatility, it's because we are. It is the only variable factor in determining the fair value of an option; the others are known with certainty at any point in time — strike price, time remaining until expiration, stock price, dividends, and short-term interest rates. However, it has practical and real application as well. If you buy options when volatility is low, then you stand to gain doubly if volatility increases. Or, even if you're wrong on the direction of the underlying market, your loss will be reduced if volatility increases. Some examples may help to clarify these points.
This article was originally published in The Option Strategist Newsletter Volume 5, No. 9 on May 9, 1996.
The concept of volatility, and especially implied volatility is extremely important for option traders. We often refer to implied volatility, for it is the foundation of many of our strategies. However, when meeting the public, I find that many people don't have a clear concept of what implied volatility is, so this article will be educational for some readers, and merely review for others.
