What it means:
-- The price of any option is comprised of "intrinsic" value if it is "in-the-money," and "time premium." A call option is in-the-money if the option's strike price is below the price of the underlying stock. A put option is in-the-money if the option's strike price is above the price of the underlying stock. Time premium is some amount above and beyond any intrinsic value and essentially represents the amount paid to the writer of the option in order to induce him to assume the risk of writing the option. Out-of-the-money options have no intrinsic value and are comprised solely of time premium.
-- The current implied volatility for the options of a given stock or commodity is "high" or "low" on a historical basis. This knowledge is key in determining the best trading strategies to employ for a given security. If the current implied volatility is close to historic low and relative strength is low 30, buy necked call
--If the current implied volatility is close to historic high and relative strength close to 90s, buy necked put or sell the put premium.
Riddle:
-- The higher the volatility level for a given stock or futures market, the more time premium there will be in the prices for the options of that stock or futures market.
-- Conversely, the lower the volatility the lower the time premium. Thus if you are buying options, ideally you would like to do so when volatility is low which will result in paying relatively less for an option than if volatility were high.
-- Conversely, if you are writing options you will generally want to do so when volatility is high in order maximize the amount of time premium you receive.
-- The price of any option is comprised of "intrinsic" value if it is "in-the-money," and "time premium." A call option is in-the-money if the option's strike price is below the price of the underlying stock. A put option is in-the-money if the option's strike price is above the price of the underlying stock. Time premium is some amount above and beyond any intrinsic value and essentially represents the amount paid to the writer of the option in order to induce him to assume the risk of writing the option. Out-of-the-money options have no intrinsic value and are comprised solely of time premium.
-- The current implied volatility for the options of a given stock or commodity is "high" or "low" on a historical basis. This knowledge is key in determining the best trading strategies to employ for a given security. If the current implied volatility is close to historic low and relative strength is low 30, buy necked call
--If the current implied volatility is close to historic high and relative strength close to 90s, buy necked put or sell the put premium.
Riddle:
-- The higher the volatility level for a given stock or futures market, the more time premium there will be in the prices for the options of that stock or futures market.
-- Conversely, the lower the volatility the lower the time premium. Thus if you are buying options, ideally you would like to do so when volatility is low which will result in paying relatively less for an option than if volatility were high.
-- Conversely, if you are writing options you will generally want to do so when volatility is high in order maximize the amount of time premium you receive.
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