Tastylive: Averaging 63% Returns When Stocks Do THIS

Traders and investors may look at the same asset, but through a different lens. For a trader using options, understanding the overall market measures such as market volatility can play a key role.

That’s because volatility impacts options prices. And it could mean getting into a trade that could lose, even if the underlying asset starts to move in the right direction.

Market volatility is measured by the VIX, or volatility index. Historically, it trades between 17-20 on average. But over the past few years, volatility has been lower than average. It took September’s market selloff just to get the VIX to 20.

Investors looking to sell options, such as covered calls or put sales, should look to sell when volatility is high. That’s because rising volatility raises the prices of options on average. Declining volatility does the opposite.

Those looking to buy options should look to do so when volatility is low. That can provide an extra boost.

Overall, increasing volatility can mean a higher return on capital for options investors. That’s because higher returns are profitable.

And higher option volatility can mean investors can make a profit while making fewer trades. That can reduce the capital needed to earn an expected profit.

To view the full data behind the role played by market volatility, click here.