Options aren't just about where price is going—they're also about how much it’s expected to move. That’s where volatility-based trading comes in. In this guide, you'll learn how to structure trades based on implied volatility (IV) rather than direction alone.
Understanding Implied Volatility (IV)
High IV=Options are expensive (greater expected movement)
Implied volatility rises before big events (e.g., earnings) and falls afterward—a pattern that can be both a risk and an opportunity.
1. Long Straddle – Betting on Movement, Not Direction
Buy both a call and a put at the same strike/expiration.
Example: Stock is $100.
Buy $100 put for $2.20
Breakeven Zones:
Downside=$95.30
Earnings are approaching
Major economic releases (CPI, Fed decisions)
Buy OTM call and OTM put (less premium, wider breakevens).
Example: Stock is $100.
Buy $95 put for $1.20
Breakevens: $107.50 and $92.50
3. Short Straddle or Strangle – Profit from Boredom
You’re selling volatility. Premiums are inflated. You want nothing to happen.
Example: Stock at $50
Sell $50 put for $2.10
Profit range: Between $45.90 and $54.10.
4. Calendar Spreads – Playing the Time Curve
You sell a near-term option and buy a longer-term one at the same strike.
Example: Stock is $75
Buy 4-week $75 call for $2.50
You want the stock to hover near $75, so the short option decays and the long one retains value.
Front-month IV is inflated
5. Diagonal Spreads – Add Direction to a Calendar
Example:
Buy 4-week $75 call
Profits from:
Delta exposure to upside
6. Vega and Volatility Sensitivity
Positive Vega: Long options gain from rising IV
Monitor:
IV Percentile: % of time IV was below current level
After high-impact events (e.g., earnings), IV often collapses. This drop in expected movement causes long options to lose value—even if directionally correct.
Buy a straddle before earnings
Stock moves only 1%
IV drops from 60% to 30% overnight → Option value evaporates
Selling premium into events (if experienced)
Wrapping Up: Trade the Odds, Not Just the Price
Profit without guessing direction
Trade the market’s expectations, not just its outcomes
Range-bound
Irrationally pricing fear or calm
Make sure you didn't miss: OptionsGreeks before our upcoming 'Greeks in Practice' — applying the math behind your trades to real-world setups.
This article was written by Itai Levitan at www.forexlive.com.Hence then, the article about learn options volatility and options strategies was published today ( ) and is available on forex live ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
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