To The Moon

The last post discusses what is delta in options. Delta, which reflects the change of option price tracking stock price: y=kx+b b is the original option price k is the delta x is the change in the stock price y is the price after the options change The delta is dynamically changing. Implied volatility is calculated through a mathematical model. The impact of implied volatility on option prices is huge. Look at changes in the price of a Tesla option below. This is Tesla's call option expiring on December 17, the strike price is $1200, and the blue at the bottom of the graph is the implied volatility. Implied volatility jumped nearly 50% during this rally. After Tesla's rally peaked, Tesla stock only fell by 0.33% in last trading day, but the option has already fallen by 20%. The reason why the option fallen is implied volatility. Implied volatility is one effect on option prices. Implied volatility is like a sentiment indicator. If the IV is too high, it means that the market is more optimistic about the option price. Take Tesla in the picture above for example, the IV value has skyrocketed, and the price of the stock has skyrocketed almost at the same time. It is easy to find that the price of the same out-of-the-money option has been many times higher than half a month ago, which is the magic of implied volatility. There are some basic applications for implied volatility. Selling options when implied volatility is high. As implied volatility peaks and reverses, option prices fall faster. When implied volatility is low, it is time to buy long. However, the precondition for these two operations is to judge that the inversion is correct, otherwise the IV is already very high, and it can be higher. 📚Recommend reading What is an Option? Ask me! How to Calculate the Gain & Loss of Options What is a Covered Call？Option Strategy Series 1 What are Out of the Money Options & In the Money Options? What is Delta in Options? 📒If you want to know more details about Tiger Paper Account, you can click here to watch【Video version of Guidance for Options Paper Account】 Finally, if you have any questions, please leave a message in the comment section.