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+820 Part VI: Measuring and Trading VolatHity 
+The reason that this approach has merit is that one never knows how low volatil­
+ity can go, and more important, how high it can get. It was mentioned that the same 
+sort of approach works well for other sentiment indicators, the put-call ratio, in par­
+ticular. During the bull market of the 1990s, the equity-only put-call ratio generally 
+ranged between about 30 and 55. Thus, some traders became accustomed to buying 
+the market when the put-call ratio reached numbers exceeding 50 (high put-call 
+ratio numbers are bullish predictors for the market in general). However, when the 
+bull market ended, or at least faltered, the put-call ratios zoomed to heights near 70 
+or 75. Thus, those using a static approach (that is, "Buy at 50 or higher") were buried 
+as they bought too early and had to suffer while the put-call ratios went to new all­
+time highs. A trend reversal approach would have saved them. It is a more dynamic 
+procedure, and thus one would have let the put-call ratio continue to rise until it 
+peaked. Then the market could have been bought. 
+This is exactly what reading the volatility chart is about. Rather than relying on 
+past data to indicate where the absolute maxima and minima of movements might 
+occur, one rather notes that the volatility data is at extreme levels ( 1st percentile or 
+100th percentile) and then watches it until it reverses direction. This is especially 
+useful for options sellers, because it avoids stepping into the vortex of massive option 
+FIGURE 39-1. 
+Chart of the trend of implied volatility. 
+XYZ 
+,J' 
+········································ · ························ ....................... ··················· 50. 0 
+... · ····················· 40. 0 
+Implied Volatility I/vi A r 
+···-····························· .. •·•······•·········-·············································-··vw•···················)·•······ 30. 0 
+All-Time Volatility Low -
+, .... , ..... , .. ··················,·······~················ 
+t :t·•····•····· ...•. ':·LJJSL5~?. 
+--;---··········•·: 
+o, b ::r F f1 h j ::r 
+34.000 
+32.000 
+30. 000 
+28. 000 
+26.000 
+24.000 
+22.000 
+20. 000