Managing Editor’s Note: Two investments legends, Jeff Brown and Jason Bodner, are teaming up to reveal the most explosive asset class for 2026: “Secret AI Stocks.”
These are a small group of “hidden” stocks that could transform into the next trillion-dollar super stocks. Each one is quietly becoming essential to AI – only the market hasn’t discovered them yet.
Already, these two experts have used hidden investments like these to deliver gains as high as 105%, 711%, 1,077%, and even 32,012%… And now they’re teaming up to showcase a system for spotting them before they become household names.
If you want to learn more, then please join them for their upcoming event on February 25 at 8 p.m. ET. They’ve even agreed to give away a free recommendation each during the event.
To RSVP to attend, simply go right here.
When folks trade options, they tend to focus on the underlying stock’s direction. But volatility is just as important.
Volatility reflects the market’s expectations about the stock’s future price movements, which flows into option pricing.
The higher the volatility is, the bigger the moves expected by the market… and the more expensive the options will be.
That reflects the risks taken on by the market maker (who typically sells you the option). If market makers don’t adequately price their risk (and how much they charge for the option), the option getting exercised could cause the market makers substantial losses.
So understanding volatility is crucial to option trading. Let’s see how it affects your decisions…
Direction strategies include things like buying a call option if you think the underlying stock is going to rise or buying a put option if you think that the stock is going to fall.
That all sounds basic enough. But not understanding how volatility impacts option prices can lead to a world of hurt. You can get the underlying direction right but still lose money if a change in volatility works against you.
Take, for example, someone who buys a call option on a stock such as Nvidia in anticipation of a big earnings announcement. To cover the risk of a big upside surprise, the market maker will charge a hefty premium.
But even if Nvidia moves higher off the announcement, the call option buyer can still lose money if volatility falls heavily after the earnings announcement. In this example, they got the direction right, but falling volatility worked against them.
This applies to other critical events like Federal Reserve meetings or key economic releases, too.
That’s why when you buy options, you want to ride rising volatility. That can generate profits even if the stock doesn’t move. On the flipside, if your strategy involves selling options, you want to sell when volatility is high but falling.
And there’s an important concept underlying all of these volatility nuances…
This relationship between option pricing and volatility is called vega. Vega is one of the “Greeks” (e.g., delta, gamma, and theta) that play such an important role in understanding options trading.
Vega measures how sensitive the option is to changes in underlying implied volatility. The higher the vega is, the more sensitive the option will be.
Vega makes a bigger impact on option pricing the closer the option is to trading at the money (ATM). That’s when the underlying stock is trading at (or right around) the option’s strike price.
Vega also has a bigger effect the more time there is until the option’s expiration.
One way option traders can really prosper is by looking for a potential collapse in volatility, such as when markets calm after an outlier or random event. Another example is after widely anticipated but ultimately unsurprising company earnings or economic releases.
Traders typically overbid on option prices in anticipation of negative events (human fear). So canny traders can pick up tidy gains when that fear suddenly subsides.
So while it’s important to pay attention to direction when trading options, you also need to think about option trades in terms of volatility.
Understanding this is what separates professional option traders from everyone else. And a firm grasp on this concept will greatly enhance your chances of making money trading options.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
