Once again two major headline news are dominating the mindsets of investors, namely (1) the trade war between the U.S. and China and (2) expectations about the future outlooks of the U.S. economy and the global economy. However, below the surface volatility may begin to impact the financial markets. For the astute and experienced investor implied volatility is an important concept and a critical aspect to understanding future price movements, especially those that focus heavily on short-term trading such as options trading. Implied volatility basically serves two major purposes for a trader. First, it tries to capture/quantify the market's view of how volatile a particular security may be in the future. Second, it can help a short-term trader calculate the probability of the next move in a security or better understand the risk/reward situation in the security in question. Attached below are the implied volatilities or commonly referred to as "investor fear gauge" of three popular U.S. indexes: S&P 500 Index Implied Volatility (VIX), Dow Jones Industrial Average (VXD), and NASDAQ 100 Index (VXN).
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