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+816 Part VI: Measuring and Trading Volatility 
+600 days of implied volatility history for the purpose of determining percentiles, but 
+a case could be made for other lengths of time. The purpose is to use enough implied 
+volatility history to give one a good perspective. Then, a reading of the 10th per­
+centile or the 90th percentile will truly be significant and would therefore be a good 
+starting point in determining whether the options are cheap or expensive. 
+In addition to the actual percentile, the trader should also be aware of the width 
+of the implied volatility distribution. This was discussed in an earlier chapter, but 
+essentially the concept is this: If the first percentile is an implied volatility of 40% and 
+the 100th percentile is an implied volatility of 45%, then that entire range is so nar­
+row as to be meaningless in terms of whether one could classify the options as cheap 
+or expensive. 
+The advantage of buying options in a low percentile of implied volatility is to 
+give oneself two ways to make money: one, via movement in the underlying (if a 
+straddle were owned, for example), and two, by an increase in implied volatility. That 
+is, if the options were to return to the 50th percentile of implied volatility, the volatil­
+ity trader who has bought "cheap" options should expect to make money from that 
+movement as well. That can only happen if the 50th percentile and the 10th per­
+centile are sufficiently far apart to allow for an increase in the price of the option to 
+be meaningful. Perhaps a good rule of thumb is this: If the option rises from the cur­
+rent (low) percentile reading to the 50th percentile in a month, will the increase in 
+implied volatility be equal to or greater than the time decay over that period? 
+Alternatively stated, with all other things being equal, will the option be trading at 
+the same or a greater price in a month, if implied volatility rises to the 50th percentile 
+at the end of that time? If so, then the width of the range of implied volatilities is 
+great enough to produce the desired results. 
+The attractiveness to this method for determining if implied volatility is out of 
+line is that the trader is "forced" to buy options that are cheap ( or to sell options that 
+are expensive), on a relative basis. Even though historical volatility has not been taken 
+into consideration, it will be later on when the probability calculators are brought to 
+bear. There is no guarantee, of course, that implied volatility will move toward the 
+50th percentile while the position is in place, but if it does, that will certainly be an 
+aid to the position. 
+In effect this method is measuring what the option trading public is "thinking" 
+about volatility and comparing it with what they've thought in the past. Since the pub­
+lic is wrong (about prices as well as volatility) at major turning points, it is valid to want 
+to be long volatility when "everyone else" has pushed it down to depressed levels. The 
+converse may not necessarily be true: that we would want to be short volatility when 
+everyone else has pushed it up to extremely high levels. The caveat in that case is that