😎👉While retail investors focus on the Price, professionals and Market Makers look at the Expectation. How do you know if the House is trembling in fear or feeling confident? The answer lies in Implied Volatility (IV).
🔸 Unlike Historical Volatility which looks to the past, Implied Volatility looks to the future. It is derived from the current prices of Options contracts.
With high Implied Volatility, Option Premiums become extremely expensive.
👉Professionals expect a large price movement to be imminent. They are rushing to buy insurance or making big bets. Fear or high expectation dominates.
Low Implied Volatility, Options are very cheap.
👉The market is in a state of Complacency. No one expects significant movements. The market is as calm as a lake.
🔸 Smart Money always acts against the crowd based on Implied Volatility:
When Implied Volatility is at record lows, this is the calm before the storm. Smart Money quietly accumulates long/short positions because the entry cost is very low. A small price movement generates huge profits due to the expansion of Implied Volatility.
When Implied Volatility peaks, that’s when retail traders buy options out of panic. What does Smart Money do? They sell Options to collect exorbitant premiums from the crowd.
👉Do not buy Options when the Implied Volatility is through the roof. You're buying fire insurance after the house is already burning.
🔹 Don't just look at the price candles sideways and think the market is boring. Open the Implied Volatility chart. If the price is ranging but Implied Volatility starts to shoot up vertically, buckle up immediately. The roller coaster is about to begin, and the movement will be violent.
Did you know that buying Options when IV is high is like buying Bitcoin at the top?
News is for reference, not investment advice. Please read carefully before making a decision.
