Most option traders focus on four primary questions.
1. What is the market trend?
2. Where should I enter the option trade?
3. What is my target?
4. What is the correct stop?
At the onset we must understand why professional option traders are highly successful. You’ll notice that almost 90% of professional option trading systems are designed under statistical models of option valuation. This model revolves around the change in option premiums, with respect to the change in volatility. One of the biggest advantages of this method lies in having prior knowledge of whether an option premium is over-priced or under. In today’s article we shall discuss this component and how it is customized by professional traders to fit their trading systems.
Implied Volatility Of