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The Skinny on Options: Abstract Applications

Price/Volatility Relationship...Violated?

The Skinny on Options: Abstract Applications

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

The core of our tastytrade philosophy rests on the mathematical relationships in the market being reliable and dependable over time. One of these relationships that we lean on quite heavily is the reliability of stock prices being inversely related with market volatility. In other words, when volatility is moving higher, stock prices are almost always moving lower.

But interestingly enough, as an earnings date approaches and volatility is on the rise, we don’t necessarily observe stock prices moving lower. In fact, they are very much independent of volatility during this window of time. So is this mathematical relationship violated?

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