You will want to avoid any type of low-volatility options that have high volatility. As we mentioned above, you should seek out the most high-volatility and predictable stock.
Here are some examples of options with higher volatility:
Options that give greater exposure to risk
Options with less than $100,000 in market cap (i.e. the most volatile of options).
Options with more than $100,000 in market cap but lower volatility.
Options with more than $100,000 in market cap with lower volatility.
The lower the volatility of the options, the greater exposure you will have.
What do the traders look for in a trade?
What do the traders really look for is a trade that makes them more money, while avoiding high risk. In this case the trader should be looking for volatility.
How do you know what’s volatility?
Once you know your volatility, you can use it in a trade. Some volatility will always result in better opportunities.
It should be noted that it is possible for any price to drop in value depending on where it happens to be trading at. This is especially true for options.
So what are we talking about here, the low volatility options?
If the low volatility option is trading at $1.25 for example, this is just a riskier trade. If the price breaks it of at $1.50 it is a slightly riskier trade.
What makes the low variance options slightly better riskier is the fact that they are less sensitive to trading opportunities. A trader can make much more money on a trade at $1.50/low volatility compared to $1.25/low volatility.
How do risk and risk tolerance play into risk and profit?
The way the risk factor plays in a stock can be seen as a result of the risk tolerance it has.
A risk for example, is when you are holding the stock for a year and only want the short term. Then you can sell some and keep the rest. You want your risk to be very low to ensure that your profit margin is higher than the risk that you took.
A risk for another example, is when you only plan to hold $10,000 of the stock for $1,000 and not sell it to get $1,000. This is similar to what it would be like trading with a credit card.
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