Everything is expensive including options in this market

We all know the simple idea of money now is worth more than money in the future and this is simply called the time value of money. Inflation is a big factor in this scenario and year after year it seems the normal person keeps losing purchasing power. Food and simple needs are fluctuating daily and keeping consumers on their feet in hopes they can buy enough food to feed their family that week. Consumer needs are not the only thing a volatile market impacts as we have seen a recent spike in options pricing as one of the main factors of the black-Scholes pricing model is this factor of implied volatility. Volatility and fear are often seen during these times, and we can monitor volatility through an index called the VIX which tracks market volatility essentially on S and P options. Current market volatility comes from this fear of a bubble and policies such as interest rates, tariffs, and politics. April 2025 is the most recent large VIX swing stemming from Trumps tariff policies which shocked the market sending the VIX to almost 53 and to put this into perspective the VIX usually sits at about high teens and maybe low twenties. April SPY options jumped in prices anywhere from 40% to 200% more expensive as these are used for hedging so the more volatile the market the more people want to hedge therefore driving the demand for options as well as prices up. Option trading during this time can be very scary as this high IV can really crush your contacts if the move is not in your favor or if the market slows down you will also get IV crushed meaning the demand for your hedge is not needed as much as when you bought it dragging the price down. Interest rates is another big one as this is the talk of the market here lately. Equities are very volatile when the term interest rates come out as this is the way they borrow to expand operations, discount future valuations, and even control that dirty inflation. Rate cuts are usually bullish as this means companies can borrow at a cheaper rate therefore expansions are cheaper and the profit margins look healthier. Valuations are set higher as the general discount rate is lower due to this rate cut meaning people see more potential future earnings in the respected firm. Understanding what a rate cut can do to a market is very important as even before the rate cut is announced volatility is spike once again increasing option prices with that IV. Portfolios consisting of high growth and speculative stocks are mainly affected by this as investors are banking on future potential earnings and a rate hike takes some of these earnings away driving the price down. Rate hikes are meant to try and "cool" inflation as they make borrowing more expensive and drags general demand down making it to where firms cannot raise prices due to the lowered demand. Interest rates are an investors best friend or worst nightmare, and it is important to understand what can happen with a cut, hike, or maintain. Volatility can really wreak havoc in the market, and we can see this by looking at the facts stated earlier in this article as during times of market uncertainty market hedges(options) prices go up meaning it is important to know where the market is at relative to what you want to get out of the market. Example say your portfolio is 70% tech ,20% financial and 10% consumer discretionary. Playing this example out let's say a rate hike just happened of 25 basis points. In theory 70% of your portfolio is probably red, 20% is probably green as banks can now charge more in interest, and consumer 10% is red as demand is now lowered from the hike. Portfolio risk stemming from rate changes is something an investor should be able to recognize in their portfolio and adjust for. Markets will always move in ways we do not see coming so it is important to know why things move the way they move in a broad view as this can be the difference in you buying a very overpriced option in a volatile market or making a lot of money on an IV hike in a rising volatility market. Summing this up is essentially know your portfolio and know what systematic risk it contains (Risk that affects the entire market). Market risk will always affect a long-term investor, so it is important to not let it scare you to the point you shy away from investing but a general knowledge on monetary policy is important and can really open up the underlying risk your "diversified portfolio" brings to the table.