13. Pay Attention to Implied Volatility

How often have you found yourself glued to a monitor watching price quotes on markets you're in?

Probably more frequently than you like. After all, watching the erratic moves of the futures markets minute by minute only elevates one's blood pressure. It also causes your mind to make guesses about what's going to happen next.

In addition, it's tempting to read news items to help "complete the picture." The bottom line is that the quotes and the news become powerful magnets that pull you closer and closer to the action. Before you know it, you're pulling up 5-minute bar charts and then tick charts to try and get a handle on the market.

Of course, futures traders have little choice. Every up-and-down move impacts their profitability, so unless they've placed protective stop orders, they must watch the markets. Options traders, on the other hand, can get away from this mesmerizing activity. How? By trading spreads that are less sensitive to market movement and more responsive to changes in implied volatility. While trading delta neutral volatility spreads doesn't guarantee profits, nothing does. But it forces a trader to focus on forecasting implied volatility which, by most accounts, is easier than forecasting market direction.

"Knowledge is power and all traders can benefit by continually bolstering their knowledge base. I hope to contribute in that regard."  Paul Forchione