Volatility for an options trader can basically mean two different things. There is historical volatility and implied volatility.
Actual historical volatility is the objective measurement of the past movement of a security expressed in annualized terms. Typically, this compares prices on a close-to-close basis. It is usually different for different time periods. For example, the 30-day historical volatility of the S&P 500 Index (SPX) is 11.5% currently. The 100-day actual vol has been 14.5%. And the last ten days? The actual 10-day historical vol is 4.15%. That certainly paints a picture that the market (in recent sessions) has not been moving much at all. (more…)
Quiksilver, Inc. (NYSE:ZQK) was an unlikely name to come across our radar in Thursday’s trading. The apparel company, which caters to the young surfing, snowboarding, and skateboarding “dudes,” saw volume of close to eight million shares trade. This compares to average daily volume of less than one million. The shares were also markedly higher on the day, up more than 20%.
An investor may be expecting reduced volatility in Coca-Cola (NYSE:KO), as evidenced by a large options trade that crossed the tape early Thursday. In the past year, KO has traded in a range between roughly $49.50 and $65 (and is near the top of this range currently). A volatility trader may be expecting this range to narrow in the coming months and is hoping to benefit from less dramatic price action in the shares of the soft drink giant. 
Twelve days ago, we had the much-anticipated initial public offering (IPO) of General Motors (NYSE:GM). Monday of this week, options on the Detroit-based automaker were (again) listed for trading.
Netflix (NASDAQ:NFLX) reported earnings Wednesday night that were viewed favorably by the Street overall. The stock was up 13% on Thursday to $173. Obviously, traders who were long NFLX stock or long a lot of deltas through a combination of long calls and/or short puts fared well in their portfolios for the most part. Conversely, those who were short delta exposure probably had a tough morning.
Before weekly options expanded to include 
Monsanto (NYSE:MON) is always one of my favorite stocks to watch, and I enjoy listening to their earnings conference call even more. Earnings are expected to be announced on June 30. With 15 analysts covering MON, the consensus per-share estimate is $0.80, and the high and low estimates are $0.85 and $0.75, respectively.
Given the current market environment, it seems like a good time to offer some quick tips for trading a volatile stock in the options market. Generally speaking, when markets are moving quickly, chances are that the options markets (as well as the stock markets) will experience wider bid-ask spreads. While this can obviously create some slippage risk in stocks, the options markets can experience a much higher bid-ask spread ratio on a percentage basis, especially if the underlying stock is thinly traded. This is in addition to potential wide swings in implied volatility that could affect options prices without the stock moving much at all.
Seeing as how the broad market has been moving lower for about six days now (the Dow Jones was very flat on May 17th), some traders who may have a longer-term vision or believe there will be a bounce from here may be able to use elevated volatility to their advantage. The CBOE Market Volatility Index (VIX) is a general indicator of implied volatility in the options on the S&P 500 Index (SPX). With the VIX up at almost 45%, which is a new 52-week high, options are relatively high priced compared to where they have been for the past year.
