Riding the Volatility Wave: Option Trading Derivative products, particularly options, offer a unique way to leverage market movements, and volatility plays a key role in this game. By understanding how volatility affects option prices, traders can craft strategies to capitalize on anticipated price swings. Volatility Skew: A Window into Market Sentiment Traditionally, option pricing models assume symmetrical volatility – meaning the cost of calls (bullish options) and puts (bearish options) is similar for the same strike price and expiration. However, the real world rarely reflects this symmetry. This is where the concept of volatility skew comes in. Volatility skew refers to the difference in implied volatilities for calls and puts with the same strike price and expiry. It reveals valuable insights into market sentiment: Positive Skew: Higher call volatility compared to put volatility suggests a market bias towards potential price increases. Traders might use strategies like bull ca
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