0:05 Welcome to Bar Chart series of educational webinars designed to educate you about a variety of market concepts to inform you of the features and tools Bar Chart provides related to these concepts and offer some traders insight to help you make a more informed trading decision. Today's subject, trading volatility and how to use implied volatility rank and percentiles for smarter option strategies. Now the price of an option is determined by six inputs. Underlying security price, the strike price, time until expiration, dividends, interest rates, and implied volatility. Now the first five are known variables
0:52 or known inputs. Whereas implied volatility is an unknown variable. Implied volatility's impact on option pricing can be dramatic even if the underlying security price doesn't move. Although market mechanics dictate that implied volatility is a function of the market participants expectations of price movement. The reality is that they participants are infamous for being wrong. In other words, volatility traders are willing to take on risk opposite of the populace opinion knowing full well that the
1:38 masses are wrong more times than they are right. The key to volatility trading is knowing comparative conditions and the right strategy to mi match those conditions. Hello everyone. My name is John Roland, Bar Charts senior market strategist. And today we're going to show you how to use bar charts array of features and tools dedicated to implied volatility and venture to show you how to spot when implied volatility is out of line and what option strategy best fit when the masses expectations have distorted options prices. So stick around as I imply some
2:24 meaningful information to help you profit from volatility of markets. But before we get to that, please welcome our moderator and bar charts project director, Jean Baker. Hello, Jean. Happy Wednesday, John. How are you doing? Oh, very well. Hump day. Hump day. Yes. Actually, before John and I start our Wednesday webinars, you know, I always like to look at what day is today. You know, is it a national day of anything and to see if I can slip something in that applies to today's session? Well, we couldn't really find anything today, but one thing of note is today is National Ride Your Horse to a Bar Day. So, I don't know. John, got your horse
3:10 ready? We got saddle it up and head out to the bar. Yeah. Okay. Well, I think we're ready to start. I'm ready to, like you said, saddle up and get going. Right. Give me up. Okay. Thank you. All right, Jean. Just a reminder that today's session is for educational purposes only, and decisions to buy, sell, or hold a trade a security, commodities, or other investments involve risk and are best made on the advice of a qualified financial professional. And options trading is not for everyone. And volatility trading can lead to substantial losses. Under no circumstances shall we
3:58 be liable for any losses or damages that you or anyone incurs as a result of any trading or investment activity that you or anyone else engages in. based on any information or material that you receive through barchart.com or our services. Okay, so volatility what is it or how do we define it? So we have something called historical volatility which it measures how fast the underlying security has been changing in price. Historical volatility can be measured over various time frames uh and to give a trader a sense of how volatile the underlying has been. That's a key point here. Historical what has happened
4:46 sometime is referred to as the realize. Now a change is not necessarily directional but can be how much a underlying uh moves up or down. Now the textbook definition is it represents the annualized standard deviation of price variance of daily price changes. How much based on past price action did the security move or fluctuate during the defined time frame? Now the greater the fluctuations, the higher the past volatility. Smaller price movements, lower historical volatility. Now, historical volatility is not a predictor
5:31 of future volatility, but rather a statistical data point that based on these past movements. Now, we're going to use it as a comparative analysis. In other words, a measuring stick. And the assumption being that was what happened in the past might also give us guidance uh to what could occur in the future. Now, what options traders refer to as mean reversion, implied volatility is the market's expectations or predictions of how much or how fast a security will move over the life of the
6:17 option. A looking forward estimate. So as I mentioned in the introduction market uh tends to overestimate high implied volat volatility or underestimate low implied volatility. So this is the cornerstone to volatility trading and seeking out these trade opportunities. Now depending on where IV is compared to the past and itself is there a path of discovery to determine a lowrisk highreward greater probability
7:02 trades. So implied volatility, how do we gauge or how are we going to determine when implied volatility is out of line? Well, there's two measurements we can use. rank and percentile. So IB rank is just at is the at the money average implied volatility rate related to uh its highest and lowest values over the past year. Now, if implied volatility is at 100%, it's been at the highest level over the past year. And an option strategy that seeks to profit from the decrease in the acid price movement, not necessarily direction, just movement or
7:50 the reduction in implied volatility may be appropriate. If the implied volatility rank is zero, an option strategy that seeks to profit from an increase in the asset price movement or an increase in implied volatility may be appropriate. So we have what was called uh IV uh percentile and this is the percent of days that where implied volatility closed below the current at the money implied volatility over the past year. Um, so in other words, a high percentage
8:36 means a majority of days had a lower IV than today. A low percentage means that a greater number of days in the past have had a higher IV than today. So we're not necessarily going to look for absolute values of 0 and 100, but they will occur. We what we want to do maybe is to look at above or below a threshold value by our design. For instance, if implied volatility or rank in percentile is below 10%, we'll look at this as a buying opportunity. or if it's above 90% as a selling opportunity.
9:24 And we'll also think about which way the rank and percentiles are trending. Again, a rising implied volatility is a buying volatility or falling implied volatility, you want to sell volatility. Uh before I move on, can I just get a sound check? I get a couple folks here. Are we doing all right with sound? Yes. Okay. Great. Super. Awesome. So, how do we apply rank and percentile? So, as I mentioned, you know, implied volatility, rank and percentile are going to give us clues to where the implied volatility is
10:10 high or low to itself and also as it compares to our historical implied volatility. So let's talk about the first steps in uh strategy uh selection. So you know at this point you probably should asking yourself which one is better rank or percentile. Now they both have their purposes but their value in in valuation is determined by the absolute range of the securities implied volatility today and historically. Okay. So let's do this. So, I've gone to the website and
10:59 um let's go under here where it says options. And here is the IB rank and percentile page. And this is going to give you an idea of those companies that are at a at a high implied volatility rank and percentile. And also we can look on the opposite side on the low. So what I want to do here kind of is I want to give you this idea of how we can measure rank and percentile and what is the relevance uh for us. So for instance here's IBM and um again you know look at here we can see our historical volatility is 27 our implied volatility today is 40
11:45 and our rank is 96.8 8 now uh percentile is 98. Now you know when I started to do this analysis for you guys to set up for today's session you know IBM had been at the 100 and 100 uh both of these. So you again your market conditions change. So just bear with me because I'm going to give you another example where it's changed a little bit more dramatically but it will bear out what I'm going to uh the point that I'm uh going to prove here. So, if I click on history here, we can see that the 52- week implied volatility range, the high end has been 4122, which what happened literally two days ago, and the low is around 15 90, excuse me, 69. So, in
12:34 other words, the range of implied volatility here is about what 27, right? Is that what it is? 26ish. So, you know, not a large or wide range. So, a tight range means that our percentages and ranks that small movements in an implied volatility can have a larger impact on our rank in percentile. And you can kind of see that today, right? Look at the implied volatility here changed by 0.4%. But our rank moved by about 3% and our percentile moved by 2%. Now let's go to another market
13:23 and this is where make that point. This again this stock yesterday was at 100 and 100. So let's go to history and we can see that our range in implied volatility here on the right hand side goes from 38 and a half to almost 104. So what's that about 65 66ish uh in terms of a range of implied volatility. But um notice again here right that's a larger range but today we see that the implied volatility changed by 6 and a
14:12 half%. But our percentile only changed by 2%. And our rank by 10%. So a larger range means that you'll get smaller impacts and changes in your implied volatility. This is called width of distribution. So the next thing we're going to do is how we look at this from a perspective of historical. Okay. So, let's go back to IVM and I'm going to click on this this plus button over here and this is where it give us some more data. So, I'm going to go where it says options and here what I can see is I can see what the current implied
14:57 volatility is. What is my historical again? What is my rank and percentile? So, what do we see is that our historical here is 27 and a half. Well, that's almost exactly in the middle of our range of high to low. So, if implied volatility fell back to 27.5, then we would anticipate that our rank and percentage would fall back to 50 in the middle of that range. But if I go to again that was it uh Celestia and I look at it's um excuse me go back wrong way
15:44 John I go to its plus sign and I look at the options right the historical here is 86 right so this is in the upper third of our 64 range So a pullback of let's say 20% in implied volatility might not change um our rank and percentile that much. So we have to think about how much the move from let's say a 100% to a 50% or let's say a 0 to 50% is that significant enough in terms of how far we are in our
16:31 historical and is that going to increase or decrease the change of our option price based on the change in our implied volatility. So determining the percentage of the current IV where it falls in that range again is it narrow or wide. Does it compare to our historical? Now for instance if I have a wide range and a low percent and rank and my historical falls in the middle then this represents cheap options. In other words, the market expectation for little or no movement over the life of an option. But
17:18 historically, it tells us different that price probably is going to move. In the case of IBM, we have a high implied volatility, a narrow range, and a historical is in the middle. So the we have the market has a high expectation of price movement. when the historical tells us that IDM is more static. So the second assessment we're going to do for our selection is going to be based on do I believe that there will be a directional movement up or down or a
18:05 nondirectional let's say a rangebound Now for instance a postevent price shock like earnings could create a rangebound market and then have a directional market. So in low low implied volatilities, directional strategies could be as simple as buying a call or a put or directional bias like spreads like the bull calls or bare put spreads. And we could go to the advance or the complex like long straddles where we really don't care
18:52 which direction our equity or security is going to move. We just are anticipating a catalyst to drive price movement and increase volatility. Now in high implied volatility conditions is a greater opportunity to sell covered calls or stocks on stocks that we already own. IBM would be a great example of that. Or in the case of bare markets like today's current conditions to sell naked puts or cash secured puts on securities that we want to add to our portfolio portfolio. Now this would be an aversion of a dip
19:39 buying. Now complex nondirectional like strangles look to capitalize on high implied volatility in the anticipation that implied volatility return to its historical levels. Now a great example of changing volatility opportunities is earnings. Typically implied volatility rises heading into earnings and then falls dramatically after the announcement. Now this is referred to as the V crush by the rumor sell the news and savvy traders look for opportunities to buy volatility prior to and sell volatility
20:28 after the rise. So, let's go back to our implied volatility page. And so, let's kind of walk through this. I know we kind of jumped through this in the introduction here, but what do we get? So, we get the stock, we get the change in price, last price change changing as a percentage, you get the options volume, then you get something called the put call volume ratio. So, this is a sentiment indicator for you. Um the general guidance on this is that somewhere between 6 and 0.8 would would be considered a neutral put to call ratio. Anything at 0.5 or below would be
21:15 bullish and anything above one or greater would be consider considered bearish. So you can see in for Hermana here at 0. 29. We have a bullish sentiment in terms of put to call volume today and that could help you decide if you want to go with or against uh the prevailing wind so to speak. But you know again let's look at our history here. And again what is nice about looking at history is you also get uh you know earnings uh history. And you can see that Hermanana did have a earnings history um back on February 11th. And let's go
22:01 back in time. Here is February 11th. And notice that prior to uh the earnings, we have an elevated um uh implied volatility in terms of rank and percentage. And then afterwards, we get a bit of a drop. Now, it's not as dramatic here as I would like to demonstrate. Maybe I could find a better example. Just pick the top one. What's the next one here? Loheed Martin. Let's see what that one looks like. Um, again, our earnings was on January 28th. Let's go back in time. Yeah, this is a little bit better example, right? Again, we can see our applied volatility is rising going into
22:49 earnings and then after earnings, you get a little bit a nice drop from 25 down to 18. So that kind of plays a better example. All right. So, um, the other thing I wanted to point out to you is that here, uh, you can look at our implied volatility. And notice that it says it's either in red or green. So, a green means that implied volatility has changed from the previous day and it has gone higher. uh red means that it it has fallen. So let's talk about that rising and falling implied volatility as it compares to rank and
23:36 percentile. So again, let's look at our IBM as our example and we're going to look at our uh go to our history again here. If I have a rising implied volatility to where we get to a point of 100% of rank in percentile, this kind of is alerting us that the current price trend um or price action, excuse me, is getting a little bit of it long in the tooth. In other words, the market is overestimating uh greater price action and that there's a probably higher probability that you know our volatility is going to start to
24:21 decline. Now, we're kind of seeing that in um uh IBM. Now, we could also look at a large change on a one-day event. Again, earnings could be one of those events, but you know, look at you, I'm going to give you the example here. You know, it could be a news story. Look at the implied volatility of what J&J did yesterday based on some uh bearish news. It jumped dramatically. So, those price shocks can also give you some uh trading opportunities. But let's go back to IBM here. So we have a rising implied volatility which tells us you know we're at a high rank and percentage we probably want to sell right going uh
25:08 into this uh this particular security but you know we do have to make sure that there aren't catalysts that are going to uh disrupt us and we do see that IBM does have an earnings coming out in April 24th again rising implied volatility going into earnings But maybe the market has made a mistake. Maybe the market has distorted implied volatility where there's an opportunity to sell. Now what I would be doing at this point now is let's look at our chart to get us a little bit of idea or direction. So what I see here
25:55 is is a market that has been kind of rangebound since February, the beginning of February. And that range looks like it's between about 265 and 235. Now again, I don't want to sell three weeks out prior an option that is going to be affected by earnings three weeks prior because there still could be a a a rise in implied volatility or prices could get wider. But let's think about this. If I think that implied volatility is too high and I see a market that looks kind of rangebound to me to me that sounds like a strangle. So I could go to the strangles
26:41 here and again, you know, am I going to strangle the market based on an option that's going to expire right after? That would probably be the ideal scenario, but I might want to wait as I get closer to options, excuse me, to the earnings date. But let's look at this option here, the April 17th. This option is going to expire prior to the uh earnings event. So maybe this one is getting distorted on the anticipation of earnings, but this one is not going to be affected by earnings, is it? So let's go to that. And then again, let's think about, you know, our short
27:27 straggle somewhere between the 265 and 235. And here we are around here. Here it is. 265 235 where I'm going to take in about $212. And you know that's not a lot but certainly because um you know we're not going to get a lot of volatility based on the earnings but I think that's a a good value. Uh and no look at our probability less than uh 25% of a potential loss and se greater than 70% of a potential profit. I'll go into our little arrow here and this is going to open up this
28:12 profit and loss page, but it's also going to give you a lot of other information. What it allows us to do here is it's going to visualize the data of this particular spread. And you can see the you know the picture here is setting up where is our potential profits where do we find uh our break even or where we turn to a loss. And so again, the setup of break even. And what it says here is that as long as I'm inside of 23588 or inside of 26712, there's a high probability that I'm going to make a profit on this particular trade. Now, let's look at the
28:57 expected move. Well, what's another word for expected move? Implied volatility, right? And I can move my cursor over here till I get to the April 17th. But you can look just look down below here and we can see that our expected move is about $9 27. And that range is 4 uh 242.84 to 26137. The expected applied volatility move for this particular options is inside of our strangle. Again, a higher probability of success. Now, you know, again, I could
29:44 go and say, all right, let's look at, you know, those options that are going to encapsulate the earnings. And again, I can look for that um shorts triangle. Let me see what we have here. Let's see. There we go. 6535. You're looking at we taken a lot more money. But again, if we look at this in terms of our expected move, notice that our expected move is outside of our strikes. So that is telling us that we yeah we're going to take in a lot more money but we're also taking on more risk. Now again I can look at volatility and I can measure that in
30:30 terms of where we are historically and in an arrangement. What I love about this one is very visual here. I can tell that I'm at a high volatility and I can also look at you know trend analysis. Now, this is what's funny about IBM is, you know, as I set this up this week, these uh gauges kind of have been flip-flopping around. Um, you know, just two days ago, the short term was down, the uh intermediate was down, and the long was up. And actually, this morning, the short was up, the medium was down, and the long was up. And really when they're flipping around like that, this is kind of telling me that this is uh indicating that the market is probably in screaming
31:18 consolidation consolidation prior to earnings. But now it's kind of flippy. But I notice all the trends here are weak. And that means that I'm not really afraid of them uh you know busting out. Okay. So let's say we let me do this. So I'm going to go back to my slides. So using chart analysis, we did that with IBM, but we also the percentage performance of the underlying security can also aid in uh selection. We'll do do that uh in a in a moment for both directional and nondirectional strategies. So what are the effects on
32:05 uh option prices based on implied volatility? So you know before we look at rising and falling viol IV implied volatility analysis let's look a little bit and talk about this impact of option pricing. So implied volatility changes effects on our more complex strategies. Okay. So vega is a what is called a Greek and vega is the change in the options price for every 1% change in the implied volatility.
32:50 So in other words uh well let's look here it says uh implied volatility increases the price of the option will increase that is for both puts and calls regardless of the direction. Um if implied volatility decreases price of options decrease. So there is a direct relationship between options prices and implied volatility. In other words, all things being equal, Vegas tells us how much our prices could change. Delta, another Greek, is the change of the options price for every $1
33:38 move up or down in the underlying security. Now delta also represents the percentage probability that an options strike price will expire in the money. This is an important concept in high implied volatility environments will lower the probability of an in the money strike expiring in the money decreasing the delta in implied volatility environments. increasing probability of a out ofthe- money strike expiring in the money increasing delta. In other words, the greater the price
34:24 variance, the lower the probability of in the monies and the higher probabilities of out of the monies. And if you think about it, that makes sense. The more the market fluctuates around brings in more strike prices into the game of probability. But a simple cause effect of this is that rising volatility on for instance bull call spreads will impact um where the spread won't appreciate as fast as let's say an outright call purchase. In other words, rising volat implied volatility might force you to hold debit spreads longer, in other
35:11 words, closer to expiration to reap the benefit of a favorable price movement. So buying VA volatility, a more optimal strategy or strategies would probably be our strangles and our straddles. All right, let's go back to um our web page and I'm going to go back to options here and I'm going to go to implied and realize and we kind of talked about a
35:56 high implied volatility. We looked at a couple examples here. Let's look talk about low implied volatility. All right. So now I'm looking at low implied volatility versus realized. Well, what's another word for realized? Well, that's historical. And again, this page is going to be sorted by the ratio of implied volatility versus historical. Again, you can see the lowest ratio of implied to historical would be the top uh candidate. So you know what we want to do is we want to look for conditions of low implied volatility in terms of our ranks right these would be low rankings and then you know we also want
36:43 to kind of look at it in terms of the significance of our implied volatility below our historical. Again, I looked at a lot of these this morning and I didn't find any really great examples until I got down um to Dollar General. Again, you know, where is our historical is at 45.78. Our current implied volatility is 3131. If we looked at this in terms of history, right, we have a range of between 267 and 70. So right now our applied volatility at 31 is at the lower
37:28 end of the range. And so again, how much could we anticipate an improvement in this case about 15 points uh percentage points? What would that do to those particular options that we're going to look at? Okay. So, let's go back to um again um this page and I did this based by rank. Now, ideally, we really want to find uh candidates that both the rank and the percentile are what I would say below a 10 value or in that lower 10th uh percentile. So I could go into the screener
38:14 here and go under um options overview and there is IV percentile and let's look at let's say our threemonth percentile and again I don't want to be greater than I want to be less than so I want to be less than 10%. So we'll say less than 11%. And so now we have 26 candidates that would fall under that criteria of both rank and percentile below uh 10% and notice our dollar gen general is here. So this would become
39:01 now a candidate where we want to look to buy implied volatility. All right. So again, let's talk about um you know, let's look at our chart. Let's see if we can see if there is a catalyst that maybe a technical or a chart catalyst that will give us uh onus to why we want to buy buy this stock or why we want to buy the implied volatility. So what do we kind of see here? This is really amazing. If we think about this, look at how the market is rising kind of dramatically, right? Yet our implied volatility is at the lowest. Well, that's a characteristic of markets that in bull markets, you tend to see lower implied volatilities. But let's
39:48 look at this. And what I see here on this particular stock is a stock that is a nice round bottom. Really nice. Uh, usually this is a really good sign of a bond and mean market. Now, we're currently in an area of what I would consider resistance or a potential area of a breakout. In other words, we're at a crossroads here. And if we break out above, well, we have a vacuum of price, a gap, and that probably would mean that we'd get a quick movement to the upside. But let's look at this from a historical aspect. And if I go back in the past, not too far, notice that we have the
40:33 same type of rounding bottom at the relatively same values. But what happened last time? Well, multiple tests of the top of our rounding bottom and then eventually did get a breakout. But each of the time it tested, what did it do? Well, it moved violently to the downside quickly to the downside. In other words, greater volatility. So this I believe would be a good candidate for buying volatility because I don't know which way uh the price of
41:19 this stock is going to go. But I have a sense that no matter which way going to go, it's going to go very fast and it's going to create a lot of volatility. So what type of trade would I look to do? Well, I would like to buy a straddle. So, let's go back to our strangles and straddles and I'm going to go long a straddle. Now, if I'm going to buy volatility, I want to pay for time. I want a lot of time, as much time as I need. But certainly if I could go out to let's say May, which is about 45 days, I'm not going to really get a lot of
42:07 faded decay. And here we have a couple of different candidates. We have the 85 um put call combination or the 90 put call. Okay. And again, if I had a bias one way or the other, you know, maybe if I had a bias to the upside, I'd probably do the 85 spread. If I had a bias to the downside, I'd probably do the 90 spread. Again, let's look at this from our profit and loss. How much do we need to get we need the stock to get above uh 94 or below 75? Uh because this would be a bullish um bias. Um that would be where we want to where we need to see to get our profit. Now again um I could look at
42:55 this again from our volatile volatility perspective. Again you know if I'm looking at implied volatility around 31 a half and my historical is 45 well maybe I can anticipate that I'm going to see a rise in my implied volatility by about 14 uh points. Now remember that number 14 points. Okay. So again let's um you know talk about our expected move again where do I need uh our market to move. So our expected move is actually right in this case we're buying volatility. our expected move is um
43:40 inside of you know our um price action that is probably going to be a good thing for or excuse me uh I believe yes uh inside yes inside so that might be a good thing for us but let's look at this from a technical aspect and the technical aspect that I like to look at and these types of trades is price movement as a performance and as volatility. So there is a couple tools that we can look for. So I'm under the technical analysis page and something called the average true range. This is another measurement of volatility. But we can see here that the average true range in the dollar general
44:27 is about $3. It's been pretty consistent here. That says that on any given day, the price of Dollar General will move $3 from high to low. Not directionally. It just tells you how much you can anticipate it to vibrate on any given day. Well, remember our upside was only about 6%. Yeah, our downside was 15%. But let's look at this from um a performance basis here. So over the last five days, Dollar General has been up 6%. Over the last 20 days, it's been up 20%. Over the last 50 days, it's been up 24%. So in the 45 days between now and the my expiration of these options, do I
45:14 think that I could get a 10% movement in Dollar General that'll allow me to capture that increased volatility? I think that is very doable. And to think about it in terms of our average true range, that $8 movement, well, I mean, I probably only need about a week of positive price action or negative price action to capture, you know, these multiples of my ATR. So, that would be something that it would be realistic for me in terms of this potential trade. Now, a three $3 move on an $90 stock.
46:01 What is that? About 3%, right? Three three and a half%. So, it's not out of the realm of reality. Okay. Um, let's do this gene for a second is I do see a couple questions that I've put up. Um, and I see you've answered a lot of them for me, Jean. So, thanks a lot. I appreciate that. You know, while John is reviewing the questions, let me just take a moment here. I did have uh a couple questions regarding whether or not you need a membership to Bar Chart to do a lot of the things that John was showing you today. Some of the pages are available
46:46 for a site visitor to go and take a look at. Uh but if you are looking to drill down and do anything with uh screening or applying extra filters or looking at um IV on different expiration dates, you really do need a bar chart membership. Uh we offer a free 30-day trial to our Bar Chart Premier membership. Uh if you have any questions, just email our support group. They'll be happy to set you up. Yeah, that's a great point, Gina. You know, if you really want to get the full benefit of all these pages and all the options stuff that we have, um it's important that you have that uh subscription. Uh question is, uh what
47:33 would you consider low and high? I think we've answered that. We think that anything above, you know, it depends on each trader, but I think anything in the 90% or above would be high and anything below 10% would be low. That's where I really start thinking about actionable trades. Um, so Russ asked a question. Can you think of volatility crush as once an unknown becomes unknown? I think that's exactly kind of what I was pointing out to you, Russ. Um, the unknown of how much volatility is going to um increase going into the VSS. We know that after the earnings there is that known that that that crush. I think
48:20 that's kind of what I think you're asking. Um and again I Russ I think I gave one really good example of how to trade that. Um so let me read this question by Dorothy. It's a little long here. So Dorothy asked if if you sell a strangle or short put which is expiring just before earnings do you risk the price volatility will have gone up a lot and could you be minimize your profits? I
49:06 think at some point yes you would. Remember an option that is going to expire before uh earnings is going to start being priced based on where the value of the the underlying security is again comparative to whatever your strike is. So if you're selling um you know an out of money call or put in this case you're saying a put and that it continues to stay out of the way. It doesn't matter what the volat volatility is, it's going to expire worthless, right? Because it's out of the money. Yes, maybe, as I mentioned before, in some of our more complex spreads, you might need to go all the way to expiration to appreciate a price
49:54 movement because that volatility is rising and is going to make both those options, those two legs of your options both appreciate in a rising envir um uh rising volatility environment. Uh the most important judgment will still be the movement of the underlying stock. This is KL. Um underlying stock can price can upset all of options data. Yes, obviously the a price movement is price of the stock is one of the variables in pricing options. But again, what we're looking for um in terms of
50:40 volatility, are we going to be on the right side of volatility? In other words, if I'm buying volatility, then I want to see price move because I'm selling, I don't want to see price movement. But if I get a price movement, it does not necessarily mean that implied volatility is going to continue to rise. Especially, and this is the key point here, especially if we're already at an extreme, right? We're already at 100%. So, yeah, we might see price movement continue in a trend. Look at that example with Dollar General, right? Our implied volatility actually was falling. So, that's why it's uh could be important.
51:32 Um, all right. So, let's do this. So, Kenneth asked a question, does the um percentage chance of being uh in the money, in other words, the probability take in consideration the volatility? Yes, that's exactly what it does. And I think if you go into any of our um option strategies and you could go into the information and I just pulled up cover calls here. I don't know but I'm pretty sure it does tell you how it does measure the probability and the math
52:17 behind it. So um yeah is definitely part of that math. Okay. All right. So, let's do this. Jean, um, if I didn't answer your questions, I apologize. Send them to supportbart.com. We actually have a couple of the guys on the support staff are options traders, so I'm sure uh, they will be very effective in answering any of your questions about u implied volatility. All right. Okay. So um what are our final thoughts here? So implied volatility is essential component to determining the price of options. We've discovered that uh using uh IV ranks and percentiles can give a
53:05 trader a relative perspective. Again that's the the key point here is it's relative um whether an option is either ch cheap cheap or expensive. Remember what is that width of distribution? Where are uh and where is our historical in terms of that width of distribution. However, implied volatility is unpredictable as some of you have already pointed out and determining the right strategy requires that diligence regarding our historical, our long and shortterm options. And again, uh, if I'm selling, I probably want to do shorter term options because I want to have theta on my side or in other words, decay. If I'm buying, I
53:52 want to probably buy more time. In other words, I don't want that theta decay. But again, I want to make sure that my Vega is probably greater than my Atheta so that I do get that appreciation of increase in volatility. And then finally understanding that volatility and its role in trade selections. Right? That is an c crucial or critical point for us in terms of our overall trading strategy. And I think uh if I had a professional volatility trader here uh they would certainly uh agree with me. All right. Um I hope you guys like that one. that
54:39 one. Uh, I kind of like volatility. I think it's pretty pretty simple. It's really, um, you know, think about it in terms of buy low, sell high, which is kind of what is our idea of all trading. Um, so next week, let's see what we have coming up. And next week, we're going to look at the trader cheat sheet. Uh, something that we have as one of our proprietary tools on our website. Now, a lot of folks will think about trader cheat sheet as a day trader tool, and it is. But I want you to think about trader cheat sheet as that at some point you will be a day trader. In other words, there will become a time when you
55:24 want to buy or sell a market, which means that it's going to occur on a day. You might only be a day trader for one day, but the trader's cheat sheet is going to help you to optimize your entries and your exits on your days of action. Okay. Um Jean, thanks for helping me out today. I hope you guys enjoyed. Um until next time, folks. Uh best of the health, manage your risk, and the good of all trading.
