Volatility-to-Emotion Gauge

How This Tool Helps Your Trading

This Volatility-to-Emotion Gauge translates abstract volatility numbers into understandable emotional states of the market. High volatility often indicates fear or panic, while low volatility can signal complacency or greed.

For options traders, understanding these emotional extremes is crucial. The best opportunities often arise when market sentiment is at extremes:

• When volatility is extremely low (complacency/greed), consider long volatility strategies
• When volatility is extremely high (fear/panic), assess whether the fear is justified or overdone
• The IV-RV spread helps identify whether options are overpriced or underpriced relative to historical movement

Remember: Markets are most dangerous when they appear safest, and most rewarding when they appear riskiest. This tool helps you visualize that relationship.