Add training workflow, datasets, and runbook

training_data/relevant/text/03dc8c144b21d15d10f5c09e5855ce202fed25815420e7bdc66238c797e7efe7.txt

@@ -0,0 +1,33 @@
+814 Part VI: Measuring and Trading Volatility 
+TRADING THE VOLATILITY PREDICTION 
+The volatility trader must have some way of determining when implied volatility is 
+sufficiently out of line that it warrants a trade. Then he must decide what trade to 
+establish. Furthermore, as with any strategy- especially option strategies - follow-up 
+action is important too. We will not be introducing any new strategies, per se, in this 
+chapter. Those strategies have already been laid out in the previous chapters of this 
+book. However, we will briefly review important points about those strategies and 
+their follow-up actions where it is appropriate. 
+First, one must try to find situations in which implied volatility is out of line. 
+That is not the end of the analysis, though. After that, one needs to do some proba­
+bility work and needs to see how the underlying has behaved in the past. Other fine­
+tuning measures are often useful, too. These will all be described in this chapter. 
+DETERMINING WHEN VOLATILITY IS OUT OF LINE 
+There is much disagreement among volatility traders regarding the best method to use 
+for determining if implied volatility is "out ofline." Most favor comparing implied with 
+historical volatility. However, it was shown two chapters ago that implied volatility is 
+not necessarily a good predictor of historical volatility. Yet this approach cannot be dis­
+carded; however it must be used judiciously. Another approach is to compare today's 
+implied volatility with where it has been in the past. This concept relies heavily on the 
+concept of the percentile of implied volatility. Finally, there is the approach of trying 
+to "read" the charts of implied and historical volatility. This is actually something akin 
+to what GARCH tries to do, but on a short-term horizon. So the approaches are: 
+1. Compare implied volatility to its own past levels (percentile approach). 
+2. Compare implied volatility to historical volatility. 
+3. Interpret the chart of volatility. 
+In addition, we will examine two lesser-used methods: comparing current levels of 
+historical volatility to past measures of historical volatility, and finally, using only a 
+probability calculator and trading the situation that has the best probabilities of 
+success. 
+THE PERCENTILE APPROACH 
+In this author's opinion, there is much merit in the percentile approach. When one says 
+that volatility tends to trade in a range, which is the basic premise behind volatility trad-