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training_data/curated/text/7e695a58f90ec85aa5969db6f692744f4d78f108ec9540a48ef83fd913227b0b.txt

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+This would be a great trade if it weren’t for the prices one would have to
+accept to put it on. First, the 120 puts are offered at 0.25 and the 123 puts
+are 0.25 bid. This means that the put spread would be sold at zero! The
+maximum risk is 3.00, and the maximum gain is zero. Not a really good
+risk/reward. The 142–145 call spread isn’t much better: it can be sold for a
+dime.
+At the time, again a low-volatility period, many traders probably felt it
+was unlikely that the DJX will rise 5 percent in a 51-day period. Some
+traders may have considered trading a similarly priced iron condor (though
+of course they’d have to require some small credit for the risk). A little over
+a year later the DJX was trading around 50 percent lower. Traders must
+always be vigilant of the possibility of volatility, even unexpected volatility
+and structure their risk/reward accordingly. Most traders would say the
+risk/reward of this trade isn’t worth it. Strikes too far apart have a greater
+chance of success, but the payoff just isn’t there.
+Strikes with High Probabilities of Success
+So how does a trader find the happy medium of strikes close enough
+together to provide rich premiums but far enough apart to have a good
+chance of success? Certainly, there is something to be said for looking at
+the prices at which a trade can be done and having a subjective feel for
+whether the underlying is likely to move outside the range of the break-
+even prices. A little math, however, can help quantify this likelihood and aid
+in the decision-making process.
+Recall that IV is read by many traders to be the market’s consensus
+estimate of future realized volatility in terms of annualized standard
+deviation. While that is a mouthful to say—or in this case, rather, an eyeful
+to read—when broken down it is not quite as intimidating as it sounds.
+Consider a simplified example in which an underlying security is trading at
+$100 a share and the implied volatility of the at-the-money (ATM) options
+is 10 percent. That means, from a statistical perspective, that if the expected
+return for the stock is unchanged, the one-year standard deviations are at
+$90 and $110. 1 In this case, there is about a 68 percent chance of the stock
+trading between $90 and $110 one year from now. IV then is useful
+information to a trader who wants to quantify the chances of an iron