Dan Passarelli, CEO - Market Taker Mentoring

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Here's the followup to yesterday's video. Dan actually recorded this right after he did yesterday's video, in anticipation of some questions. Dan mentioned yesterday that the implied volatility for NFLX is below the historical volatility.

So this is a really important concept when it comes to pricing options. The concept is that if the actual volatility of a stock is expected to stay about roughly the same as it is now, that means that the value for the implied volatility should be the same as the historical volatility. Looking at NFLX there is no reason to believe that its volatility will fall drastically. It could even go higher. So if the implied volatility is priced below the historical volatility, that means that options are cheap.

It's pretty hard to pick a direction here on Netflix looking at Dan's analysis, yours may be different, but he didn't see a particular direction here. Dan does see the potential for movement. Therefore, because options are cheap, that's why yesterday he shared that this was a really good straddle or strangle candidate.

Another question that Dan often gets is when do you use a straddle or a strangle? If the stock is right at or very close to a strike price, he will use a straddle. But, if it's between two strike prices, Dan will use a strangle because he wants to start out as close to a zero delta as possible. I hope this helps.