Another Look at Option Volatility

Here is another look at stock option volatility. The chart is again the CBOE NASDAQ daily volatility index over the past year. The upper and lower channels are an Excel trend line of one standard deviation. There is some useful information here, especially if you are buying an option with the expectation of holding it for 90 or more days.

Clearly, the best time to buy a longer term option is when the VXN is at the bottom channel. You will get a boost in option premiums from an increasing volatility. Conversely you probably would not want to go too far ahead with out-of-the-money options when the VXN is at or above the upper channel because option premiums will get hammered by decreasing volatility.