How Can a Trader Profit from a Discrepancy between Implied and Historical Volatility? ⎊ Path

How Can a Trader Profit from a Discrepancy between Implied and Historical Volatility?

A trader can profit by engaging in a volatility trade. If a trader believes implied volatility (IV) is too high compared to historical volatility (HV), they can sell options (become a net seller of volatility), expecting IV to drop and premiums to decrease.

Conversely, if they believe IV is too low, they can buy options (become a net buyer of volatility), expecting IV to rise and premiums to increase. This is known as trading the "volatility spread."

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