How Implied Volatility Impacts Option Premiums

To measure how Implied Volatility impacts options premiums, we must first define what implied volatility is. The majority of derivatives analysts consider implied volatility as the expected future volatility of the underlying. Let us set the record straight: Implied volatility is not the measure of the volatility of the underlying instrument. Implied volatility reflects the behaviour of a specific option strike.

It makes no predictions about future price swings of the underlying instrument, since the relationship is tenuous at best. Implied volatility can change rapidly, even without a corresponding change in the underlying asset's volatility. Although implied volatility is measured the same as volatility, as a standard deviation percentage, it does not actually reflect the volatility either of the underlying asset or even of the option itself. It is simply the demand over supply for that particular option, and nothing more.

So to take a trade you need to define a premium like this week the variable is 310 in Nifty so 24800CE of 10th March expiry when it goes below 200 you can keep selling it with a Stop loss of 310 and a target of 65 and similarly 24200PE of 10th March expiry it went above 200 but couldn’t hit Stop loss of 310 and already achieved its target of 65.