Add training workflow, datasets, and runbook
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CHAPTER 14
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Studying Volatility Charts
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Implied and realized volatility are both important to option traders. But
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equally important is to understand how the two interact. This relationship is
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best studied by means of a volatility chart. Volatility charts are invaluable
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tools for volatility traders (and all option traders for that matter) in many
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ways.
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First, volatility charts show where implied volatility (IV) is now
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compared with where it’s been in the past. This helps a trader gauge
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whether IV is relatively high or relatively low. Vol charts do the same for
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realized volatility. The realized volatility line on the chart answers three
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questions:
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Have the past 30 days been more or less volatile for the stock than
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usual?
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What is a typical range for the stock’s volatility?
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How much volatility did the underlying historically experience in the
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past around specific recurring events?
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When IV lines and realized volatility lines are plotted on the same chart,
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the divergences and convergences of the two spell out the whole volatility
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story for those who know how to read it.
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