The signal hiding inside implied vol
Stock hits a new high. You think it's bullish.
But what's implied vol doing?
If vol is falling while spot rallies, the dealer community is probably long gamma. They're selling into the move. That positioning acts as a cap, and mean reversion becomes more likely than continuation.
Now contrast that with spot rallying and vol rising together. That's call demand driving the move. People are paying up for upside. That smells like a real breakout.
Same logic works in reverse. Stock pulling back but vol declining? The panic isn't there. That dip might be worth buying. Spot falling and vol catching a bid? Stay out of the way.
Spot tells you what happened. Vol tells you what's likely to happen next.
Most traders never check. They stare at candles and wonder why they keep getting chopped up.
Volatility first.
Imran
Disclaimer (Your Gains & Losses, Your Responsibility): This content from Options Insight LLC (“Options Insight”) is for educational purposes only and does not provide individual investment advice or recommendations, nor should it be considered an offer to buy or sell any security. All information is general and not tailored to your specific objectives, financial situation, or risk tolerance. Employees of Options Insight may hold positions in the assets discussed. While we use sources believed to be reliable, we are not responsible for errors, omissions, or losses resulting from reliance on this content. Always consult a licensed investment professional.
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