Options Myth #7

IV Determines "Cheap" or "Expensive"

TRANSCRIPT

IV Determines "Cheap" or "Expensive"

There is a lot going on in this statement. In fact, my answer may confuse you.

But here goes…

This statement is true and false at the same time.

The reason relates to the point we make in Myth #3. There are two types of Options traders - Volatility traders and Directional Leverage Traders.

Each uses options very differently.

As an expert, who has traded options both ways at the highest level, I pointed out that only 0.1% of options users are Volatility Traders. 

Everyone else uses options for the Directional Leverage it provides.

So, this statement is true if you are a Volatility Trader.
It is not true if you are a Directional Leverage Trader.

For a Directional Leverage Trader, “Cheap” or “Expensive” options has confused people for the last 40 years. 

The Industry's Answer 

The industry leads investors to analyze Implied Volatility ("IV") for the answer. That's not going to get you the answer!

Yes, you want to buy “Cheap” options. 

And Yes, you want to Sell “Expensive” options.

However, are you sure that Implied Volatility plays a role in that answer? 

Why would you be sure? Because that’s the way the industry taught you? 

The industry has created massive confusion with the options education they provide. It’s incomplete and misdirected. And if you don’t believe me, I’ll show you proof!

The Real Answer

You see, the Top 1% of investors don’t focus on Implied Volatility, nor the Greeks for that matter. They think more about their Target Stock Price, Risk Reward, and Confidence. 

That's what ultimately determines cheap options.

Download my Free book "The Options Answer," where I clarify all the confusion caused by the available education and start you on the right path! 

It’s the class everyone should take before learning anything about Calls and Puts.