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Not sure what you mean.
In terms of interpreting what it means to the actual market of the
underlying - it means that there probably has been some basic fundamental
that caused a drop in prices that resulted in volatility levels shooting
up.
From my viewpoint as a options trader interested only in trading
volatility or directional strategies based on TA and/or volatility - it
doesn't matter what happened to the underlying market I am trading - it
tells me to shift strategies to take account of a change in volatility
levels in the market I am trading.
So, for example, if I had been buying naked calls - and I wanted to
maintain my bias - I would switch to selling naked puts to take advantage
of the shift in volatility - assuming corresponding shifts in IV and fair
pricing of options.
Bundy
:
Bundy,
Thanks for the explanation. I am reasonably familiar with the concept and
importance of volatility in options trading. What I was more interested
in was the specific interpretation of the volatility curves you wrote in
AFL.
For instance, looking at the attached chart of DIA, does the interesting
looking crossover of the curves around 3/12/04 tell you something
important?
Steve
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