How Can Traders Profit from a Difference between IV and Their Expectation of Future Volatility? ▴ Learn

How Can Traders Profit from a Difference between IV and Their Expectation of Future Volatility?

Traders can profit by selling options (short volatility) if they believe the current Implied Volatility (IV) is higher than the actual future volatility (Realized Volatility). Conversely, they can buy options (long volatility) if they believe IV is too low.

This strategy is known as volatility trading and involves predicting future price movement magnitude, not direction.

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