Volatility Part III
Premium buyers (straddles, strangles) love volatility because it provides quick profits as the underlying asset makes a large move. And if that move is down, there's the bonus payoff of an increase in the implied volatility (IV) of the options.
Alas, not everyone is Kojak and premium sellers usually don't love a volatile market. It's true that the option premium looks very juicy, making it temping to sell options – but these options carry large premium for a reason – the market has been volatile.
Prudent premium sellers, including buyers of iron condors, can make money if we remember to be cautious and pay careful attention to risk management. That means trading fewer options or spreads, not being greedy, and recognizing when it's time to take a loss and find a better trade.
You can estimate the fair value for an option by entering an estimated volatility into an option calculator.
You can look up the historical volatility (20-, 50- and 100-day) of the underlying stock or index.