Understanding the concept of volatility is necessary to options trading success. An options trader who can be aware of whether a given option is cheap or expensive on a historic basis has a great advantage in the marketplace. Flexible traders can buy premium when volatilities are low and sell premium when volatilities are high. They can set up spreads in which they buy inexpensive options and sell expensive options, thus obtaining the best of both worlds. These are key steps in time after time placing the odds as far in your favor as possible. To gain a meaningful understanding of volatility as it relates to options trading, you should learn three topics:

1. Historical (or statistical) volatility
2. Implied option volatility
3. Relative volatility