InvestorQ : When I buy an option (call or put) should I bet on price or on volatility?
Niraj Mehta made post

When I buy an option (call or put) should I bet on price or on volatility?

Answer
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Niraja Mehta answered.
2 years ago


You can play on both, although playing on volatility can be slightly more complicated compared to playing on price. There are 2 ways that you make money on options. If you bought a Reliance 920 call at Rs.8 and if the spot price of Reliance went up from Rs.900 to Rs.925 then the option also becomes more valuable. The second instance is when the price does not really move much but because of higher volatility, the market expects better returns on call options. As a result OTM options acquire more time value and become valuable giving you a profit. When you trade options, you must first be clear why you are buying the call option. When you buy for volatility, you must have a clear reason s to why you expect the volatility of the option to go up. Otherwise, you may end up making time work against you.