How do you know whether volatility will rise or fall in the future?

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nxt7

When I look at the volatility graphs of the instrument I want to trade, all I see is just noise with peaks and troughs here and there....
 
nxt7 said:
When I look at the volatility graphs of the instrument I want to trade, all I see is just noise with peaks and troughs here and there....
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IMHO: rmorse is correct! However, some people consider volatility a mean reverting play. For example, when volatility is near it's yearly high, some would think odds are better that it will retract, rather than expand. My 8-ball keeps replying "Ask again later." and "Don't count on it."!
 
stepandfetchit said:
IMHO: rmorse is correct! However, some people consider volatility a mean reverting play. For example, when volatility is near it's yearly high, some would think odds are better that it will retract, rather than expand. My 8-ball keeps replying "Ask again later." and "Don't count on it."!
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I was an option market maker for 25 years. I can tell you that you need to plan for the unexpected, but use the past to base your assumptions. That gives the highest expectancy in my opinion.
 
nxt7 said:
When I look at the volatility graphs of the instrument I want to trade, all I see is just noise with peaks and troughs here and there....
More...

There are a ton of people out there who claim its easier to forecast volatility but i think trying to forecast vol is just as challenging as forecasting direction (specially short term vol).

-gariki
 
kcgoogler said:
There are a ton of people out there who claim its easier to forecast volatility but i think trying to forecast vol is just as challenging as forecasting direction (specially short term vol).
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They are highly correlated. If you get one, you can often predict the other.
 
rmorse said:
They are highly correlated. If you get one, you can often predict the other.
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True Bob. What i mean is after say a big flush down and a vol spike, there is a high probability that vol say an year out will come down but short term as in a month out can still be a coin flip. That said, i am not saying its easy to capitilize on it since the pricing will have this fact built in into it.
 
nxt7 said:
When I look at the volatility graphs of the instrument I want to trade, all I see is just noise with peaks and troughs here and there....
More...



  • Instrument? As in options or the underlying?
  • Could you post one of these volatility graphs?



:)
 
I never traded index options. I traded equity options. They had a predictable pattern around earnings and events. Option flow was predictable and option vol was too, for many years. Direction....to me...not so much.
 
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