Trading Volatility

Patrick Ceresna
September 24, 2014
3 minutes read

It is common for traders that are new to options to make many of their trading decisions based solely on the prediction of the price move. While the price move is an important component of the overall success, the ultimate profitability is dramatically impacted by volatility pricing.

Implied volatility is materially different than the stock’s historical volatility. The historical volatility is a reflection of the stock’s actual past range. On the other hand, the implied volatility is far more a gauge on the sentiment of investors.


In the options market, there needs to be a buyer for every seller. It is a zero sum game. Suppose there is a considerable demand from option buyers to accumulate calls on a hot stock. If the demand is skewed, the implied volatility would need to steadily increase until it incentivizes the sellers of the options enough to reach an equilibrium. This is a process of price discovery in the live markets.

What does this mean for traders and investors?

It means that almost all known information or consensus expectations on a price move are often fully accounted for in the option price. Taking that into account, how does a trader create consistency in profits?

Well this is a question we will seek to answer in detail during the Toronto Options Education Day on Saturday, September 27th, 2014 at the Metro Convention Center. In Package 2, I will spend the morning going into detail on understand volatility.

9:00 a.m. to 12:00 p.m. – Vega: Friend or Foe? – MX instructor Patrick Ceresna
(Break from 10:15 a.m. to 10:45 a.m.)

Volatility seems to be a recurring theme that many options traders struggle to fully understand. It is a crucial component in the pricing of an option contract and it is extremely important that investors learn to fully utilize it. Join Patrick to be equipped with all the essential knowledge to not only hedge against volatility risk but also to trade volatility! This workshop provides an introduction to volatility strategies and explains how Vega, the measurement of sensitivity to volatility, can either work for or against the investor. Strategies covered will include straddles, strangles as well as the effect of volatility on debit and credit spreads!

There are a few seats still available, if you are interested, please register using the following link. http://www.m-x.ca/evenements/optionsdayTor14_en

I look forward to meeting you at the show.

Patrick Ceresna
Patrick Ceresna http://www.bigpicturetrading.com

Derivatives Market Specialist

Big Picture Trading Inc.

Patrick Ceresna is the founder and Chief Derivative Market Strategist at Big Picture Trading and the co-host of both the MacroVoices and the Market Huddle podcasts. Patrick is a Chartered Market Technician, Derivative Market Specialist and Canadian Investment Manager by designation. In addition to his role at Big Picture Trading, Patrick is an instructor on derivatives for the TMX Montreal Exchange, educating investors and investment professionals across Canada about the many valuable uses of options in their investment portfolios.. Patrick specializes in analyzing the global macro market conditions and translating them into actionable investment and trading opportunities. With his specialization in technical analysis, he bridges important macro themes to produce actionable trade ideas. With his expertise in options trading, he seeks to create asymmetric opportunities that leverage returns, while managing/defining risk and or generating consistent enhanced income. Patrick has designed and actively teaches Big Picture Trading's Technical, Options, Trading and Macro Masters Programs while providing the content for the members in regards to daily live market analytic webinars, alert services and model portfolios.

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