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+818 Part VI: Measuring and Trading Volatility 
+quickly revert back to where they were. But for a position trader, the problems cited 
+above can be troublesome. 
+Having said that, if one looks to implement this method of trying to determine 
+when options are out of line, something along the following lines should be imple­
+mented. One should ensure that implied volatility is significantly different from all of 
+the pertinent historical volatilities. For example, one might require that implied 
+volatility is less than 80% of each of the 10-, 20-, 50-, and 100-day historical volatili­
+ty calculations. In addition, the current percentile of implied volatility should be 
+noted so that one has some relative basis for determining if all of the volatilities, his­
+torical and implied, are very high or very low. One would not want to buy options if 
+they were all in a very high percentile, nor sell them if they were all in a very low per­
+centile. 
+Often, a volatility chart showing both the implied and certain historical volatili­
+ties will be a useful aid in making these decisions. One can not only quickly tell if the 
+options are in a high or low percentile, but he may also be able to see what happened 
+at similar times in the past when implied and historical volatility deviated substan­
+tially. 
+Finally, one needs some measure to ensure that, if convergence between 
+implied and historical volatility does occur, he will be able to make money. So, for 
+example, if one is buying a straddle, he might require that if implied rises to meet his­
+torical (say, the lowest of the historicals) in a month, he will actually make money. 
+One could use a different time frame, but be careful not to make it something unrea­
+sonable. For example, if implied volatility is currently 40% and historical is 60%, it is 
+highly unlikely that implied would rise to 60% in a day or two. Using this criterion 
+also ensures that the absolute difference between implied and historical volatility is 
+wide enough to allow for profits to be made. That is, if implied is 10% and historical 
+is 13%, that's a difference of 30% in the two - ostensibly a "wide" divergence 
+between implied and historical. However, if implied rises to meet historical, it will 
+mean only an absolute increase of 3 percentage points in implied volatility - proba­
+bly not enough to produce a profit, after costs, if any length of time passes. 
+If all of these criteria are satisfied, then one has successfully found "mispriced" 
+options using the implied versus historical method, and he can proceed to the next 
+step in the volatility analysis: using the probability calculator. 
+READING THE VOLATILITY CHART 
+Another technique that traders use in order to determine if options are mispriced is 
+to actually try to analyze the chart of volatility - typically implied volatility, but it 
+could be historical. This might seem to be a subjective approach, except that it is real-