Options Q&A - How To Profit from "Out of The Money" Options When Volatility Goes Up

(The following applies to traders interested in options trading, stock trading, investing, options strategies, and volatility)

QUESTION >

If I buy an option that is out-of-the-money and its volatility goes up (which raises the value of the option, but the stock never goes up to the in-the-money category), then can I still take a profit from that position?

Thanks,

KC

ANSWER >

Hi KC,

Yes, and this is one of the most fascinating aspects of options. That is, as an option trader, you do not necessarily need the underlying stock to move in order to make money.

How is this possible? It has to do with the fact that an option