How to Trade Volatility with the IV Chart and Vol Trader

Hello everyone, welcome to today's session in Quantsapp. In today's video we will be learning about how you can trade volatility. But before that, if you are new here, you can go in the description; there is a link below. With the help of that you can download and install the Quantsapp web application. After successful registration you will get some free tools in the application that will help you out in your trading, okay? Now, in the application we have a separate video library. So in this video library you will get certain videos that will help you out in your trading. These videos are based on Plus tools as well as on various strategies, and they are available in multiple languages as well, okay? So in your meantime you can watch these videos. At any point of time, if you feel like you are having any kind of doubts or queries, you can go in the support section. So here you will get our contact number as well as email ID, so you can contact us and we will be there to sort your queries out. So let's start today's lesson. In today's lesson we will be talking about volatility and how you can trade it, okay? Now, when we are talking about volatility, okay, volatility, so in simple terms, if I define volatility, it is nothing but the movement of the price, okay? So if your price is moving in the upward direction, or if your price is moving in the downward direction, okay, so it is defined by the volatility, right? Like how much in the

upward direction or in the downward direction the market can go, right? Okay, now this is the movement of the price, right? So we are defining the movement of the price in terms of volatility, right? Now there is a term that we know... cut now. Okay, ready, 1, 2, 3, start. Okay, so there is a term, okay, that is IV, okay? It is very much popular among option traders, right? That is IV, and it means the implied volatility, or you can say the forecasted momentum, okay? Now in today's video, when we will be talking about how you can trade with volatility, we will be considering the implied volatility, right? And the implied volatility is defined in terms of open interest, right? It means, like, on which strike price the maximum number of writers are making their position, so they are thinking the price can move till this level in the upward direction, okay, and till this level in the downward direction. And that is when we define that the market has the capability that it can move to this point or it can move to this point, because the sellers are expecting the market can go till this level, right? So this is one of the things that we have to take care of, right? Okay, now let's directly go to the Quantsapp application. In the Quantsapp application we have the Analyse section here, and IV

chart, that is for the implied volatility chart. So I am opening it. Now you can see currently I am analysing Nifty, okay? So you can see this is the white line that will denote the implied volatility. So you will notice here there are two properties of IV that I will share with you, okay? So let me write it down here. So the two properties of IV are: the first property is, the first property is, your implied volatility is always mean reverting, okay? So it will always revert from a certain point, right, always return from a certain point. So you can see, if this is my implied volatility, okay, so whenever it is moving in the upward direction or it is giving me a spike, then from the very next moment it is cooling down or it is falling, right? Similarly, you can see every time it is giving me a spike, then it falls, okay? It will never move like this and then keep moving in the upward direction, okay? It will never move like price movement, okay? So my IV, the implied volatility, is mean reverting; that is the first property of IV, okay? Now the second property of IV is that it is sticky to bottom. Sticky to bottom means, if this is the bottom of IV, it will always come back to this level, okay? So if it will go in the upper direction, again it will come back to here; if it will go again in the upper

direction, again it is coming back here, right? So this is the second property, that is, my IV is bottom sticky, you can say sticky to bottom, right? Okay, so on the basis of these two properties we will be trading the volatility, okay? So now when we are trading options, either we can be buyers, okay, either we can be buyers, or we can be sellers, right? Okay, now when I'm talking about buyers, okay, so the buyers earn profit when the market moves, okay, when there is a momentum in the market. So if my IV will increase, at the same time my price will also increase, okay, we know that. So my IV is directly proportional to the price, okay? So if my IV will increase, at the same time my price will also give me a momentum, okay? And if my IV will not increase, at that time what will happen? The market can be in the negative direction, or the market can be, you can say, in a sideways direction, okay, in a choppy market, okay? So when the price will move, when the IV will move, that is the market when the buyers will make the profit. But when the IV will fall down, it means there is no momentum in the market, the market is stuck in a range, so that is the market when the sellers will make the profit. And that is what we need to consider when we are making a trade, okay? Now, suppose currently if I analyse here, so

the market is approximately at 16.65%. If my IV is spiking up, and I know currently it is at that range, for example 17 to 18 for my Nifty, you can say 17 to 18, so now it is at the 17 to 18 range, okay, so I know now the IV will cool down. And when the IV will cool down, at that time that is the market for the sellers, okay? So what can I do? I will go and make a trade from the seller's perspective. What are the types of strategies I can use? So I can go with the short straddle, okay, I can go with the short straddle at that time, okay. Obviously I can hedge this one also, okay, with, you can say, I can make an iron condor as well, okay, I can make a butterfly strategy as well, okay. If I'm going from the buyer's perspective, at that time I can go with the long straddle, I can go with the long straddle as well.

So these are the very simple strategies that you can use whenever you are going to trade the volatility, right? Now, in my market, you can say there are so many stocks, right? We have so many stocks in our futures and options, and I want to know in which stock the volatility is maximum, so in this stock I can go and make a trade from the seller's perspective, I can go and sell those stocks. Now similarly, I want to know which are the stocks in which the IV is at its bottom, so now it can move in the upper direction. So I want to know which are those stocks, because I can go and make a buying position, or I can make a strategy like long straddle that will help me as a buyer, okay? I want to know those stocks. So for that, in the Quantsapp application we have a feature here. So if you will go here in the Trading section, you can see there is Vol Trader, okay? Now in the Vol Trader, just a second, let it load. Okay, in the Vol Trader you can see there are certain stocks giving me, like, this is the stock which is giving a short volatility. So it means the volatility will not move that much, so I can go and make a trade of short straddle in this one, okay? Similarly, in Trent I can see it is giving me a long volatility. It means there will be volatility in this stock, okay? So it might be at the bottom, and that is why there are chances that

the volatility will increase. So as a buyer I can go with this type of stock. It is also giving me an indication of PB, that means probable buying, okay? Whenever there will be a signal of PS, it means probable sell, okay? So similarly there are multiple stocks; you can see these are here, okay? So similarly, what can I do? I can just filter my stocks from here. So if you can see, at any point of time, if I'm analysing that right now the sentiments of the market today are bullish, at that time I can go and make a trade in the long volatility sector, because as a buyer I'll get a profit, right? Similarly, if I analyse at any point of time that the market is neutral, is in a neutral state, or the market is in a sideways direction, there is not that much momentum in Nifty and BankNifty, at that time I can go and make a trade in short volatility stocks as well, right? So let's see an example of today; I can analyse from here currently. Let me show you, let me show you here: in the Nifty I can see the Nifty is in long position, okay? So there has been a movement of 288 points, 288 points, okay. In FinNifty it is in short covering, moving in the upper direction, again a 412 points move in FinNifty. In BankNifty, short covering as well, so an upward move of 963 points movement in BankNifty. So I can see the movement is intact

in all of these indices, you can say, and they are giving me a good momentum. So this is the market where I can go and make a trade in the stocks from the buying perspective, right? So again I will show you how. So I will go in the Trading section, I will go in the Vol Trader, okay. Now in the Vol Trader I have to filter my stocks. So if you want the stocks that have been given by the model recently, you have to go here: long volatility, PB, that means probable buying, okay? So these are the open trades, so you have to click there. Now you can see Trent, e Motors, Can Fin Homes, Berger Paints, Tata Steel, SAIL, boft, Midcap Nifty, ABB, right? So these are all the trades that have been given on 25th November, and these are open right now, okay. If I show you some results from the past as well, so I will go to long volatility. So these are all the signals that have been given by the model previously. So you can see in Persistent as well, okay, so the signal IV was 28.22; it gave me a signal on 22 November, okay. The ATM IV currently, the IV is trending at 31.6. So you can see here, you can see from 28.22 my IV increased to 31.6, okay, as the model suggested to us that there will be long volatility in this particular stock,

right? So my volatility increased, and we know that when volatility increases, that is directly proportional to the price, so the price will also increase, right? And you can see we got a return of approximately 3.4% here, right? Similarly, if I take another example, long volatility, it gave me a signal on Dabur. So at that time the volatility was 17.26% on 22 November, and from there it increased to 19.52%.

Trent here, okay? So in Trent I can make a buying position, I can make a long straddle as a buyer. So I will go in the Trading section, in the Option Architect, okay, and I will go in the Custom section, okay. So I will select the stock here. So my stock was Trent, okay, so I will go with Trent here. So let's go with Trent, yes, Custom. Okay, now we have already made the strategy for you, so what you have to do, you have to go here; you can see the straddle here as well. So I will just apply here, and confirm, reset. And then you can see I have bought a call option of ATM strike price, as well as I have bought an ATM put strike price as well, okay? So then you can see the payoff as well here. So you will notice, if my market gives me a momentum in either direction, either the market will go bullish or the market will go in the bearish direction, still I'll be making a profit, okay? So you can see, if my market goes till 6,360, at that time I'm having a profit of 15,800 till expiry and 16,840 on 25th November. Similarly in the bearish direction also, okay, sorry, in the bullish direction also, I'm having a profit of 18,800 till expiry, and on 25th November

I'm having a profit of 19,772, okay? But there is one condition: the market has to be volatile, and that is being referred by our model, okay? If my market will remain in a range, at that time I'll make a profit, I'll make a loss of approximately 12 to 14,000. But you can see the risk-reward ratio, but you can see the risk-reward ratio is approximately, I guess, 1 is to 1 here, yeah, more than 1 is to 1, right? So this is the example of long volatility, right, the stocks in which we are getting the long volatility. Let's see another example in which we are getting a signal of short volatility, from the seller's perspective. So for that I will go here, that is short volatility, PS, that means probable sell, right? So I will just click here. So you can see these are the stocks that are giving me a short volatility. It means there will not be that much volatility, so my price will not increase, okay? So it will not move, it will not give me that much movement, so that is the stock, that is the market for the sellers, okay? So let's see. I will go with UltraTech Cement, I can go with this, I can go with SRF as well. So let's take SRF and let's see what are the strategies that we can apply on SRF, okay? So I will just type SRF here. Okay, so SRF, and this is

the stock, yes. Now just a second, oscillate, and then we will go on the short straddle. So I have to make a short straddle in this stock. So now you can see what I have done: I have sold a call option of ATM, at the same time I have sold a put option of ATM strike price, right? So this is a short straddle, okay? So if my market will remain in a range, you can see the payoff as well, so if my market will remain in a range, at that time I will be having a good profit, right? Now to cap this up, you can see I'm having a profit of 16,000 approximately, but if my market goes beyond my range, at that time I'm having a loss of 24,000. Similarly, I'm having a loss of 24,000 in either direction, right? I want my direction to, I want my market to remain in a range. Now to hedge my loss, to cap my loss, okay, what I will do, I will just add one leg here. Now in this one, what I will do: if at any point of time my market goes beyond 2,200, I'll be having a loss, so what I will do, I will just add, I will buy a 2,200 put option, right? Similarly, again I will add a leg here and I will buy a call option as well. So if my market goes above 2,240, at that time I will again be

hedging my position, so I will buy a call option of this one, right? So you can see I have hedged my position. So now the maximum loss I'll be having with this strategy, that is 1,350, okay, and similarly in the opposite direction 1,350, and the profit I'll be getting, that is 6,150, if my market remains in this range, right? So you can see my risk-reward ratio is very good; it is approximately 1 is to 3 times, okay? So this is the strategy that I have given you, and now my short straddle is converted into a short iron butterfly, okay? So these are the strategies that I can use if I am a seller and currently the stock is giving me a short volatility signal, right? So what you have to do, I'll summarise it again, okay. So first you have to check what are the sentiments of the market, if the market sentiments are bullish or bearish, okay. Then you have to go in the short straddle, so you can go in the Trading section, in the Vol Trader, okay. In the Vol Trader you will get certain stocks, and make sure to check the IV chart as well, if the implied volatility is at its bottom or at the peak. So that will help you out, like if you can go with this strategy or not, right? So if at any point of time you are selecting any stock, and in the IV chart also, in the

I... 1, 2, 3, start. So at any point of time, if you are selecting any stocks from the Vol Trader, and at the same time when you go in the Analyse section, in the IV chart, you are also analysing that the IV of that stock is also at its bottom, at that time you can go with the long, long... cut. Ready, 1, 2, 3, start. So then one, okay, and you are also analysing in the IV chart that the implied volatility of that particular stock is at its bottom, okay, so it means now it can increase. So that will be your confirmation; then you can go and make a long straddle, okay? Now in the Vol Trader, if you are getting any stocks in the short volatility, you can come here in the IV chart, you can just confirm if the IV of that stock is at its peak. So that will be a confirmation for you that now the IV will cool down, and that will help you out, because the market will be range-bound, okay, the market will be range-bound, right? So this is how you can trade the volatility by yourself. I have shown you some strategies with the help of which you can trade it efficiently and flawlessly, okay? So I hope the concept is clear. I hope you got to know something good today. Maybe you can just like the

video, share it with your friends as well. Make sure to share your views in the comment section. Thank you so much, this is your trainer, Ankit Singh Rawat. Have a good day.