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+Chapter 39: VolatiDty Trading Techniques 821 
+buying, where the buyers perhaps have inside information about some forthcominf 
+corporate event such as a takeover. True, the options might be very expensive ( 10ot 
+percentile), but there is a reason they are, and those with the inside information know 
+the reason, whereas the typical volatility trader might not. However, if the volatility 
+trader merely waits for a downturn in implied volatility readings before selling these 
+options, he will most likely avoid the majority of trouble because the options will 
+probably not lose implied volatility until news comes out or until the buyers give up 
+(perhaps figuring that the takeover rumor has died). 
+Volatility buyers don't face the same problems with early entry that volatility 
+sellers do, but still it makes sense to wait for the trend of volatility to increase (as in 
+Figure 39-1) before trying to guess the bottom in volatility. Just as it is usually fool­
+hardy to buy a stock that is in a severe downtrend, so it may be, too, with buying 
+volatility. 
+A less useful approach would be to apply the same techniques to historical 
+volatility charts, for such charts say nothing about option prices. See the next section 
+for expansion on these thoughts. 
+COMPARING HISTORICAL VERSUS HISTORICAL 
+The above paragraphs summarize the three major ways that traders attempt to find 
+options that are out of line. Sometimes, another method is mentioned: comparing 
+current levels of historical volatility with past levels of the same measure, historical 
+volatility. This method will be described, but it is generally an inferior method 
+because such a comparison doesn't tell us anything about the option prices. It would 
+do little good, for example, to find that current historical volatility is in a very low per­
+centile of historical volatilities, only to learn later that the options are expensive and 
+that perhaps implied volatility is even higher than historical volatility. One would nor­
+mally not want to buy options in that case, so the initial analysis of comparing histor­
+ical to historical is a wasted effort. 
+Comparing current levels of historical volatility with past measures of historical 
+volatility is sort of a backward-looking approach, since historical volatility involves 
+strictly the use of past stock prices. There is no consideration of implied volatility in 
+this approach. Moreover, this method makes the tacit assumption that a stock's 
+volatility characteristics do not change, that it will revert to some sort of "normal" past 
+price behavior in terms of volatility. In reality, this is not true at all. Nearly every stock 
+can be shown to have considerable changes in its historical volatility patterns over 
+time.