Lesson 1: Why Read Volatility?

Promise: Understand what professional vol traders see that you don't, and why it matters for your trades.

The Edge You're Missing

You know what an option is. You understand that IV affects price. But when you look at an options chain, you're probably just scanning for "cheap" or "expensive" options.

Meanwhile, a derivatives trader glances at the same screen and sees:

• "Puts are bid hard. Someone's scared."
• "Front-month is inverted. There's an event."
• "Skew is flattening. Fear is leaving."

Same numbers. Completely different information.

💡

Vol isn't just a number. It's a language. This course teaches you to read it.

"I just trade perps. Why should I care about options vol?"

Because vol indices are some of the most-watched indicators in finance, and for good reason.

Vol indices move markets

The VIX (S&P 500 implied volatility) is called the "fear index" for a reason. When VIX spikes, equities sell off. When it collapses, risk rallies. Crypto has equivalents: DVOL (Deribit's BTC vol index) and VolMex track BTC/ETH implied vol. These aren't obscure metrics. Funds, desks, and algos trade off them.

Vol changes cause spot moves (not just the other way around)

Here's the mechanism: when IV rises, options market makers who sold options need to delta hedge by buying/selling spot. Large options orders use this to reduce execution cost. Instead of slamming the perp book for 1000 BTC, a whale buys calls. Market makers hedge by buying spot, pushing price up gradually. By the time you see the perp move, the options market already priced it.

The extreme version: gamma squeezes. GME in January 2021 went from $20 to$480 largely because retail call buying forced market makers into a hedging spiral. The options tail wagged the stock dog.

Skew is a directional signal

When put skew steepens, real money is flowing into crash protection. When call skew emerges (rare), someone's positioning for upside. These are directional signals you can use for perp positioning.

Vol regimes change how you trade

In low-vol regimes, ranges hold and mean reversion works. In high-vol regimes, breakouts stick and momentum wins. Knowing which regime you're in changes how you size, where you set stops, and whether to fade or follow.

Bottom line: The options market is a $1B+ daily sentiment indicator with concrete price impact. Even if you never buy an option, learning to read vol makes you a better perp trader.

What Vol Traders Actually Watch

Professional traders don't look at "the IV." They look at how IV differs across the options chain:

Signal

What It Means

Trading Implication

OTM puts have higher IV than calls

Demand for crash protection

Market is nervous

Near-term IV > far-term IV

Event risk priced in

Something happening soon

IV rising while spot flat

Uncertainty increasing

Big move expected

IV dropping after a move

Uncertainty resolved

Vol crush incoming

These patterns have names: skew, term structure, vol regime. Once you learn them, you can't unsee them.

A Real Example

Imagine you see this on the BTC options chain:

Strike

7-day IV

30-day IV

$90k (OTM Put)

78%

62%

$100k (ATM)

58%

55%

$110k (OTM Call)

52%

54%

Without vol literacy, you might think "IV is around 55-60%."

With vol literacy, you see:

1. Steep put skew (78% vs 52%): People are paying up for downside protection
2. Inverted term structure in puts (78% > 62%): The fear is near-term, not general
3. Flat call skew: Nobody's betting on upside

Translation: The market expects something bad, soon. Probably within a week.

💡

The option chain is a sentiment poll where people vote with money. Learn to read the results.

What This Course Covers

Over 11 lessons, you'll learn to read:

Part 1: The Building Blocks (Lessons 1-4)

• Skew: Why puts cost more than calls (and when they don't)
• Term Structure: Why near-term vol differs from far-term
• The Vol Surface: How skew + term structure combine into one picture

Part 2: Reading Patterns (Lessons 5-7)

• Smile & Smirk: Different skew shapes and what they mean
• Vol Regimes: Low vol, high vol, crisis vol, and how to recognize them
• Surface Dynamics: How the whole picture moves together

Part 3: Greeks Beyond the Basics (Lessons 8-9)

• Vanna, Volga, Charm: The second-order Greeks that move your P&L
• Reading Your Greeks: What your position is actually betting on

Part 4: Putting It Together (Lessons 10-11)

• Market Signals: What the vol surface is telling you right now
• Vol Trading Intuition: How to think like a vol trader

Who This Is For

This course assumes you've completed Options Explainers or have equivalent knowledge:

• You know calls, puts, strikes, expiries
• You understand that options have time value and IV
• You've heard of delta, gamma, theta, vega

If you're shaky on any of that, review Options Explainers first. This course builds directly on it.

The Goal

By the end, when someone says "skew is steep, term structure is inverted, we're in a high-vol regime," you'll know:

• Exactly what that means
• What the market is pricing in
• How it affects your trades

That's the difference between knowing what options are and knowing how to read them.

Test your understanding before moving on.

Q: Why do professional traders look at IV differences rather than just 'the IV'?

Q: If OTM puts have much higher IV than OTM calls, what is the market saying?

💡 Tip: Try answering each question yourself before revealing the answer.

Navigation: ← Course Home | Lesson 2: Skew →