Implied volatility is one of the more important indicators in options trading, and it has the characteristics of mean reversion, especially when the volatility is high. In this article, we will discuss the characteristics of implied volatility and the strategies for applying it in options trading.
As an indicator that reflects the market's expectations of future volatility, implied volatility often exhibits mean reversion. This regression trend is especially evident when volatility is at a high level. Whether it is a rapid regression or a regression after a period of high consolidation, a trend of implied volatility reverting to its mean can be observed.
Option sauce collated and released.
When volatility is high, it usually means that the market has a high expectation of volatility going forward. In this case, the seller's strategy can be adopted. High volatility provides a good safety cushion to protect positions even if there is a reversal in market direction.
Whether it is a double-sell strategy or a single-legged seller strategy, it can effectively reduce risks and provide protection for investors. Depending on the individual's risk appetite, you can choose to build a closed sell-side strategy, or you can choose a neutral or open-ended sell-side strategy.
Only by fully recognizing the characteristics of mean reversion when volatility is high, and with a certain degree of security, investors can be more bold to adopt a sell-side strategy. By grasping the characteristics of implied volatility, investors can better trade options and make gains in volatile markets.