Becoming an Option Wizard
1. Option Wizard knows volatility, implied vs. historical or:
Option Wizard knows when 50c bananas are selling for $1.21.
Historical volatility is the past.
Implied volatility is how the option is priced right now. Compare to see if your option is fairly, under or over priced.
For example, if your IV is just a few points higher than HV, it indicates demand. You may consider a long position. (Some experts say the only option worth buying is an overpriced option. To a degree, we would say.)
Two to five times higher and up, as in the example above, consider option sale, anticipating regression of inflated implied volatility to historical volatility level. We cover these and other scenarios at length in Option Wizard Trading Method. (More on that later).
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