Question

if you expect that the stock of Nico oil drillers inc. will exhibt large price volatility over the next three months, desribe an option trading strategy that would reflect your expectation.

Answer 1

When the prices of a share is expected to exhibit high volatility then it is better to buy, Out of the money options because it will help in gaining higher amount of profits through low investment, because it can either gain through the movement on the upside or it can either gain through movement on the down side but the movement will be extreme and it can be gained through out of the money options.

So option trading strategy would be to buy an out of call money option and an out of put money option so it will provide the advantage of gaining through wild movement either on the upside or wild movement either on the downside due to increase of volatility.