OptionsTradingFormula.com One of the biggest mistakes that are made by options investors all around the world, is overlooking the options current Implied Volatility, When volatility is high, options tend to sell at a premium, when low, options tend to sell at a discount. Therefore Options must be purchased when IMPLIED volatility is LOW, there are two kind of Volatilities, one is the Historical Volatility and that is the volatility of a financial instrument based on historical returns, and the other one, the IMPLIED Volatility which is the volatility that, given a particular pricing model, yields a theoretical value for the option equal to the current market price. This Is the Volatility we will be using. The way to calculate the appropriate volatility is to look for the maximum and minimum IMPLIED Volatility in the last 12 months, and then divide that area in three thirds, first third been the Green zone, second third the Yellow zone, and the top third the Red zone, now, the current Implied Volatility should be in the Green zone in order to purchase an option when you are trying to benefit with the purchase and the sell of that option, because in this zone the worst case scenario when it comes to Volatility, is that your Option can increase in Volatility, increasing its value, the Yellow zone is a cautious zone , I personally purchase one options transaction that’s in the Yellow zone, for every two or three that I purchase in a Green zone, and last third , the Red top …