Hedge with Options on moomoo —— Options Volatility Analysis

As the market fluctuates and the US stock options heat up, many mooers are asking what option features can moomoo provide. Welcome to the Hedge with Options series! Today, we are going to talk about Options Volatility Analysis.

An option offers the buyer the right to buy or sell a certain amount of an underlying asset at a specific price on or before a certain date.

It means that we can pay a small price (premium) to get future rights to reduce future uncertainty. Therefore, options are like an insurance policy for your stock positions.

Generally, the underlying stock goes against the value of a put option while going positive with the value of a call option. You may try to buy a put option or sell a call option as the underlying stock price depreciates.

The maximum loss of a put is limited to the premium paid to buy the put option, and the maximum potential loss for buying a call is the premium paid*.

If the price of the underlying stock rises, the price of a call option is likely to increase more, and the price of a put option is likely to fall greater, vice versa.

Implied volatility is extrapolated from an option’s current value, which captures how the market views the future volatility of an underlying asset.

Volatility is a measure of how stable something is over a certain period of time. The greater the change is, the higher the volatility will be, and vice versa.

This can be explained by the climate. For example, if a region is warm in winter and cool in summer, its temperature changes significantly throughout the year. In this case, the volatility of temperature in the region is high. By contrast, if a region is warm all year round, it indicates minor temperature changes and low volatility.

When it comes to options, the volatility of the underlying asset presents a positive correlation with the price of an option. That is to say, higher volatility indicates a higher option price and vice versa.

For the buyers, the more wildly the underlying asset swings, the better chance the buyer achieves their expectations. Thus higher costs need to be paid. While for the sellers, the opposite is true. Higher volatility brings about higher risks and the received option premium is increased accordingly.

If you want to explore the relationship between an option’s implied volatility and historical volatility, moomoo’s Options Volatility Analysis is at hand!

You can check the option’s implied volatility, historical volatility, volatility premium, mean IV, and their relations so as to smooth your trading and help you find the best time for trading.