Why Option Prices Rise and Fall Even When the Stock Doesn’t Move
Implied volatility is a key factor in options pricing. It reflects how much the market expects a stock to move in the future. This expectation directly influences the price of an option, regardless of whether the stock actually moves.
If implied volatility is high, the option premium will be higher too. That’s because the potential for large price swings increases the odds of the option becoming profitable. On the other hand, low implied volatility means smaller expected movement, which lowers the option’s price.
This matters whether you’re buying or selling options.
Buyers often look for low implied volatility, hoping it will rise after they enter a trade. Sellers tend to prefer higher implied volatility so they can collect more premium upfront, ideally before it fades.
But timing it wrong can work against you. Buying an overpriced option right before volatility drops can leave you stuck with a losing position—even if the stock moves in your favor. And selling options when volatility is too low can leave little room for profit compared to the risk you’re taking on.
Implied volatility doesn’t predict direction. It only signals how much the market thinks a stock might move. That’s why understanding it is just as important as picking the right strike price or expiration date.
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If you want to stop second-guessing your trades and finally understand how the pieces fit together, our program is the place to start.
