If relative
volatility has a low
rank, say 8 (out of
10), then analysts
usually recommend
that a trader would
be generally better
off buying premiums
as opposed to
selling them. On the
other hand an option
with a high ranking
relative volatility
is usually advised
to sell (or write)
options instead of
buying them.
Over time those
strategies that
allow a trader to
avoid unfavorable
scenarios and focus
on high probability
positions will
induce profit making
cases.
Tip:
Variations in
volatility have a
greater effect on
longer termed
options than on
short ones.
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