Given that I decide to take on a trade based on volatility risk, consider the following:
(1) Read news. If anything significant jumps out (like earnings anouncement, new guidance, possible takeover, new contracts etc. or even something related to market at large, like interest rate change, political crisis, unemployment rate etc.) and I am reasonably swayed to one side of price movement, factor that in to my trade. This is ok, you have got to take a view sometimes. Just make sure that this view does not represent 100% of your trading risk. On the other hand, if you cannot reasonably be swayed to one side of price movement (whether there is significant news on the underlyer or there is absolutely none), then stick to 100% of volatility risk.
(2) Make the trade. Always embed a stop loss. I like the trailing stop or trailing stop limit (the latter is little riskier)
(3) Constantly modify your trade, relative to market news and changing volatility? how to do this?
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