.All right. It is Monday, September 20th, and today is another zero DTE day. And today is the 38th episode of the Xero DTE podcast. Today. I'm going to talk about, volatility and what it really means to our strategy. Or what it means to just about any trading strategy, particularly when you're dealing with options.
What is volatility? Volatility is the, measure of how excited or how random or how much energy there is in the market. So generally we, attribute volatility with down markets and that's because when we have down markets, we tend to have larger ranges in our minute to minute moves because people are panicked.
So generally when we have panic, the size of the moves in, in anything or any kind of decision decisions or radical, going from point a to point B is more erratic when you have that kind of movement that is also associated with uncertainty. You know, other things that might cause uncertainty is well, things that are in the future, anything that's in the future.
And particularly if it's in the future and it appears to be deleterious or bad for you. When something's bad for you, you get panicked and you make erratic moves and you make bad decisions. And that all of that is bad. So for that reason, volatility, we associate with fear because, I guess those types of feelings that I just express are all associated with fear as well.
When you have something that's unknown, that's an that's fearful. We tend to play. A higher premium on it because of that unknown, that might sound, I guess, backwards or maybe antithetical to what we mean when we think of, premium or something that's worth more.
We think of it in a more positive sense, but what this is really saying is. We're taking more risk. Therefore it's going to cost us more. So when you take more risk, you're putting more at stake. And so that's why premium grows now. Options. Are made up of a number of pricing components of which volatility is one of them.
It's one of the major ones. Also time, time and volatility are sometimes the same thing, but particularly when you have time associated with erratic movements in the market. And the reason for that is that time. And the further out you go, the further things are unknown when things are unknown. As I had said earlier, there's a premium associated with that and we see this in interest rates.
So for instance, longer-term interest rates tend to have higher rates associated with them. And that's because they're more unknown as we get closer and closer and closer maybe down. 30 years to 10 years, to five years, to six months to two months to one month to one day that premium or that unknown is lessened and therefore the premium or the cost of that is less.
That's basically what volatility is. It is this premium that we associate with things that are either. Uh, unknown or in our, limited understanding we should be fearful of them or concerned, I guess concerned might be a better word, but there are cases where we are definitely fearful.
So one thing that we've been experiencing over the past, Five or six trading sessions in the S and P is definitely a lot more volatility. And that's happened as the market has been moving down day in, day out, one day after another. And that is cause for concern, particularly when people are used to seeing the market go up, up, up, and never look back.