How Can an Options Trader Profit from a Decrease in Implied Volatility through a Specific Strategy?
A trader can profit from a decrease in implied volatility (IV) by selling options, as a drop in IV will cause the option premium to decrease, regardless of the underlying asset's price movement (assuming all else equal). Strategies like selling a 'strangle' or 'straddle' are common.
These involve selling both a call and a put option, profiting from the premium collected if the underlying price stays within a range and IV falls.
Glossar
Decrease in Implied Volatility
Definition ⎊ A decrease in implied volatility signifies a reduction in the market's expectation of future price fluctuations for an underlying asset.
Trader Profit
Execution ⎊ Trader profit within cryptocurrency, options, and derivatives contexts fundamentally arises from the differential between entry and exit prices, net of transaction costs and funding rates.