Roger Scott got an email Thursday from someone who said the explanation I gave about volatility and option pricing on “Opening Playbook” — the 10 a.m. ET weekday show with Graham Lindman and Nate Tucci! — was “hands down the best lesson I’ve ever heard on volatility with options pricing in 27 years of trading.”
A BIG thank you to Jason for the very kind words!
Volatility is getting tossed around like it’s the end-all, be-all market metric right now — but most traders don’t really understand what they’re looking at.
You hear people say the VIX is spiking, so there must be fear. You hear that options are pricing in massive moves. But here’s the problem: None of that actually tells you what’s happening in the market.
Volatility isn’t fear. It’s not even direction. Volatility is just uncertainty — a wide spread of opinions on price. When candles are huge and gaps are big, when nobody agrees on what something is worth — that’s volatility.
But that doesn’t mean down. That doesn’t mean panic.
It just means: We don’t know.
So when you see a massive green candle paired with a high VIX, that’s not contradictory. That’s exactly what uncertainty looks like when FOMO kicks in.
You can have uncertainty in both directions. And understanding that is step one to not getting smoked in this market.
The VIX Isn’t Volatility — It’s Pricing
Here’s what you really need to know…
The VIX isn’t measuring actual market behavior. It’s not looking at candles or gaps or what happened yesterday. It’s measuring market makers’ expectations of volatility based on option pricing — specifically the implied volatility on out-of-the-money SPX options about 30 days out.
It’s not realized. It’s not visible. It’s not even directly tradable. It’s just a snapshot of what the options market thinks might happen.
So when VIX is high, it doesn’t necessarily mean the market is crashing. It means market makers are charging a premium — because they just got blindsided or because they’re pricing in risk that hasn’t materialized yet.
And that creates a really tricky dynamic for anyone trying to buy options.
The Trap Option Buyers Fall Into
When implied volatility is elevated and realized volatility is flat — like it is now — buying options is a brutal game. You’re paying through the nose for movement that just isn’t happening.
Calls and puts are expensive because the VIX is high, but the market itself is chopping around in 1% daily ranges. If you’re a buyer, you’re getting clipped on theta and volatility crush.
And unless the move is fast and violent, you’re probably not making your money back.
This is why so many traders feel like they’re doing everything right — picking the right direction, setting decent entries — and still losing.
The problem isn’t the setup. It’s the pricing.
The only environment where option buying really works? When volatility is low and about to spike. Until then, you’re playing defense.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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