SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Trading Volatility: Why It Isn’t Always a Bad Thing

Volatility is still widely misunderstood — and feared — by novice traders. As someone lacking in trading knowledge and experience, you often hear and believe horror stories of unstable markets. The fear is valid. After all, your shares and investments are at an elevated risk in an unpredictable environment.

However, panicking during volatile conditions is the last thing you want to do. To an extent, volatility can even play to your favor as a trader.

Volatility: Causes and Effects

Volatility is simply explained as the severity and frequency of change in the value of an asset over a certain period of time. It is mostly associated with the stock market but it also applies to different markets, such as foreign exchange or commodities. Regardless, a market with low volatility means there isn’t much change in the price of an asset, certainly not enough to stir a panic. High volatility, on the other hand, indicates wide price fluctuations and heightened risk for investors.

Volatility occurs when there is an imbalance of trade orders. Panic selling, for example, can trigger a sharp decline in stock prices, while panic buying can cause prices to shoot through the roof. What causes volatility, then, is the sentiment of investors that leads them to behave in a certain manner. This is influenced by a couple of factors, including economic and socio-political developments. Announcements from the central bank, inflation, and elections fall under this category. Company developments also influence the value of a certain stock. A change in corporate leadership or announcements of a new product can trigger investors to take a bullish or a bearish view on the asset.

High volatility also has negative effects on the trading process as well. Because of the high volume of trading, execution of orders might be delayed. Actual prices might vary from the quoted prices from when the order was placed due to the delay in execution. Or worse, high trading activity might make it difficult to place trades in a timely fashion or even access online trading accounts. To prevent these from happening, the U.S. stock exchanges set up circuit breakers to temporarily pause trading activity during turbulent times. This happened several times in March as investors panicked over the coronavirus outbreak which fuelled market volatility.

Taking advantage of volatility

That said, volatility isn’t necessarily something to fear. In fact, any trader with enough experience will tell you that price movements, whether positive or negative, present more opportunities to turn a profit. This is especially true for short-term traders like day traders or swing traders who take advantage of price fluctuations. Risk moves in both directions — while volatility might mean a greater potential for loss, it can also magnify the potential for rewards. Of course, the key is making an accurate prediction of how an asset’s price will move. Short-term traders who bet on price swings use different volatility indicators to determine the best position for their trade. These indicators let investors properly time market highs and lows so they can enter and exit as necessary. Or, it can also be used to justify shorting a stock or as a hedging strategy.

Another way to take advantage of market volatility is to trade derivatives instead of the underlying asset. Stock CFD trading, or trading contracts for difference, allow you to speculate on stock share prices regardless if it’s an uptrend or downtrend. For instance, instead of risking exposure in a falling market, you can profit from CFD trading by speculating on the downtrend using volatility indicators. Trading options is another way to use volatility in your favor over shorter periods of time.

Whether you’re trading the primary asset or its derivative, it’s important to understand that market volatility is an inevitable part of trading. For short-term traders, it’s actually a welcome component because stagnant prices limit the potential to generate profit. But if you’re taking a long-term approach by investing, avoid panicking in turbulent conditions. Continuously review your risk tolerance and rebalance your portfolio, while also getting comfortable with riding out highs and lows.


What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles


  • Should You Finance or Pay Cash for a Home?

    When buying a home, individuals who have accumulated enough wealth to pay cash or make a substantial down payment have a decision to make. Take advantage of record low interest rates and lock in a 30-year mortgage for around 2.5%? Or pay cash and make payments to yourself by investing the savings?

    By Jesse,

  • Implied Volatility Collapse

    The key ingredient on expiration Friday is volatility collapse. At the beginning of that last trading day, there are more than 6 hours of trading yet to go. However, there are 38 hours left before expiration on Saturday. When volatility is high, OTM options are most likely to be overpriced.

    By Michael C. Thomsett,

  • Trading Volatility: Why It Isn’t Always a Bad Thing

    Volatility is still widely misunderstood — and feared — by novice traders. As someone lacking in trading knowledge and experience, you often hear and believe horror stories of unstable markets. The fear is valid. After all, your shares and investments are at an elevated risk in an unpredictable environment.

    By Kim,

  • Models and their limits

    Options traders tend to think mathematically. When considering selection of an underlying, risks and expected profits, the model of outcomes is a primary tool for making selections. Without a model how can anyone understand the differences between two or more options that might otherwise appear the same – similar moneyness, same strike, and same premium.

    By Michael C. Thomsett,

  • When You've Only Got $1000 To Invest, What Do You Do?

    Are you new to the world of investments? Most likely; it’s not something you just fall into! BUt at the same time, investing can be done by anyone. Investing doesn’t need to be saved for retirement. It isn’t something only the uber rich are able to get into.

    By Kim,

  • Use of Options Spreads to Reduce Risk

    Traders may view spreads as a means for reducing market risk. But this also means that the potential profit is just as limited as potential loss, and this is easily overlooked in the focus on risk alone. A realistic view of spreading is that it reduces risk in exchange for accepting limited maximum profit.

    By Michael C. Thomsett,

  • Put Writing in 2020: The Role of Timing Luck

    The impact of luck can play a meaningful role in the short-term outcomes of monthly option trades due to the requirement to roll expiring contracts. The extreme volatility in 2020 highlightsthis fact when we look at results of SPY cash secured put trades launched on slightly different start dates.

    By Jesse,

  • The problem of Option Math

    Option traders may be divided into two categories. First are those relying on instinct or casual observation. This group tends to speculate on directional movement, future volatility, value, and on potential profitability of trades. The second group is involved deeply with math of trading and depends on what is perceived as certainty or near certainty.

    By Michael C. Thomsett,

  • Put/Call Parity: Two Definitions

    Traders hear the term put/call parity a lot, but what does it mean? There are two definitions and they are vastly different from one another. The first definition involves the net credit/debit for any combination trade, with trading costs are considered. The second definition takes assumed interest rates and present value into mind.

    By Michael C. Thomsett,

  • Do Options Affect Stock Prices?

    It is widely acknowledged that the price of the underlying directly impacts the premium of the option. Therefore, options are termed derivatives. Their current value is directly derived from movement of the underlying price. Is the opposite also true? Does movement of the option value affect the underlying price?

    By Michael C. Thomsett,


  Report Article

We want to hear from you!

There are no comments to display.

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

Options Trading Blogs Expertido