Natural Gas Implied Volatility Trade Idea

A common mistake traders make is failing to efficiently express their opinion in the market. For instance, if a trader believes the broad market is about to trade higher they may buy call options to profit if their view plays out. But if the market does trade higher, it’s highly probable that volatility trades lower as well.

When traders buy options (calls or puts) they are buying volatility, which is a bet on higher market uncertainty. The trader who feels the market is likely to trade higher, also must believe that volatility will trade lower.

To efficiently express one's opinion in this example, a trader is better selling puts, or purchasing the underlying stock as both of these examples would benefit from a drop in volatility along with a rally in the underlying price of the stock.

We were faced with this decision in Natural Gas. The video, Trade Idea Shared – Bearish Natural Gas, walks you through how we efficiently expressed our opinion trading Natural Gas.