Question

Strategies through which one can profit as a function of one’s directional and volatility views. How can you go about forming directional and volatility views? In what ways might your directional view interact with your volatility view?

Answer 1

Directional and volatility views refer to the stock market. Stock market is very volatile but speculators can catch its direction with the help of technical analysis. Traders analyze the whole stock market or a particular stock on the basis of technical analysis that includes charts and patterns, these chart and patterns tell the future direction of stock whether it will go up or down, accordingly traders take Bullish or bearish move.

We all know that stock market is very volatile but this volatility can be measures with some factors like Volatility index of market, standard deviation and Beta of the stock. Beta of the stock tells how sensitive the stock is with respect to market. After finding the volatile view, traders come to know whether the security is highly volatile or low volatile. If it is highly volatile, it will have high up and down side range and if it is less volatile, it will be range bound.