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There are a few different "kinds" of implied volatility. They are all based on the IVs obtained from the option pricing model you use. (1) Basically, given a few different values (current stock price, time until expiration, right of option, exercise style, strike of the option, interest rates, dividends, etc), you can obtain the IV for a given option price. ...


4

As I understand it, Implied Volatility represents the expected gyrations of an options contract over it's lifetime. No, it represents that expected movement of the underlying stock, not the option itself. Yes, the value of the option will move roughly in the same direction the value of the stock, but that's not what IV is measuring. I even tried ...


3

You are making a very dangerous assumption when you say: It's clear the stock is about to see a sell-off and so the price of the stock would decrease causing a downward push on the option price. It's not clear at all that high-variance stock with spot price above moving average is going to see a sell-off. There could be a myriad of reasons why it will ...


3

Option pricing models used by exchanges to calculate settlement prices (premiums) use a volatility measure usually describes as the current actual volatility. This is a historic volatility measure based on standard deviation across a given time period - usually 30 to 90 days. During a trading session, an investor can use the readily available information ...


3

I can't speak authoritatively to your broader question about stocks in general, but in several years tracking AAPL closely, I can tell you that there's little apparent pattern to when their earnings call will be, or when it will be announced. What little I do know: - AAPL's calls tend to occur on a Tuesday more than any other day of the week - it's ...


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My broker (thinkorswim) offers this from the platform's trade tab. I believe this feature isn't crippled in the PaperMoney version which is effectively a "free online service."


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The liquidity primarily depends on the specific equity type / position you are looking at. You want to look for stocks or ETFs that have significant volume themselves before trying to jump into an option contract. The most important things you should look at are Volume and Open Interest for the specific contracts, strikes, and expiration. Near the money / ...


2

The liquidity is quite bad. I have seen open Intrest drop from thousands to zero. Theta and the lack of liquidity are strong reasons not to buy options. Instead, consider selling them. They say that most Option purchases expire worthless. Why is this so? Because hedge funds buy those out-of-the-money puts in case their position goes against them (like ...


2

There's an explanation of what that means a few lines farther down that page: So if the last two numbers are 597/ 87%ile, that means that of the last 597 daily implied volatility readings, the the current daily reading is higher than 87% of them It looks like they keep a record of ~600 days of their previous implied volatility calculations, but some ...


2

The Black-Scholes model was based on assuming lognormal stock price fluctuations with a constant volatility. However, the modern practice is to use the Black-Scholes formula not as a prediction but merely as a parametrization of option prices, where the observed price of a given option at a given time translates to a "local" implied volatility (IV). Thus, ...


2

If we were to observe some call price (e.g., 15), and then derived implied volatilities from the BS formula depending on different strike prices but fixed maturity (i.e, maturity = 1, and strike goes from 80 to 140??), would we then see a smile? Yes. Market prices for various strikes and a given maturity often have higher implied volatilities from the Black-...


2

No - Volatility skew is the change in volatility when moving away from at-the-money, and is almost always positive (by convention, not by definition). I'm assuming that the example in your book is K moving down from at-the-money (closest strike to the current price) for call options, which means the strike is getting deeper in-the-money, and the volatility ...


2

Option pricing is based on modeling the stock price as a random walk, not a "return to the mean". According to the efficient market hypothesis, it is never "clear" that a stock is "about to rebound" or "about to see a sell-off". Upside and downside risks should always be balanced. They are not necessarily symmetric (e.g., there could be a large chance of a ...


2

for a) consider http://www.samoasky.com - they have a free tool called optionsoracle which allows you to download option chains for most markets automatically, and plot a "volatility smile", which you can then filter out for expiry, calls/puts etc. for b) I don't know any tool, but I did write one myself in C# and Zedgraph, which was a timer animated client ...


2

CME's volatility-quoted options are essentially a way for you to create a delta-neutral position by buying and selling an option and a future at the same time, so your primary immediate exposure is to the volatility component of the option. If you think the volatility of the UDS/EUR market is undervalued, then you might use these quotes to be long ...


2

A change in implied volatility tells us something about what investors are thinking (or fearing) about the volatility going forward for the life of the associated option contracts (which may be short or long-lived). IV does a good job of summarizing the information available to investors, which includes information about the past and the present. However, ...


2

To get the probability of hitting a target price you need a little more math and an assumption about the expected return of your stock. First let's examine the parts of this expression. IV is the implied volatility of the option. That means it's the volatility of the underlying that is associated with the observed option price. As a practical matter, ...


2

Since near-term at-the-money (ATM) options are generally the most liquid, the listed implied vol for a stock is usually pretty close to the nearest ATM volatility, but there's not a set convention that I'm aware of. Also note that for most stocks, vol skew (the difference in vol between away-from-the-money and at-the-money options) is relatively small, ...


1

How accurate is Implied Volatility in predicting future moves? How would you measure this? If the implied volatility says that there's a 1% chance that a stock will double, and it doubles, was it "right"? You could also say that it says there's a 99% change that it doesn't double, so was it "wrong"? What you could measure is the variance of daily ...


1

Implied volatility is the "average" (in a certain sense that is hard to explain here) volatility of the underlying expected by the market before maturity of an option. Most options mature in a long time (a few days), and thus counting in terms of days usually makes sense. If I buy an option when the market close whose maturity is the open price of ...


1

Historical volatility of a stock is going to be based on past performance, basically its current trend. That can be useful, but really is no indication of how it will perform in the future. Especially with a big swing in the market. Now if you're talking about implied volatility (IV) of an options contract, that's a little different. IV is derived from ...


1

What you are referring to is the Composite Volatility which is an evaluation of all of the options of a single security. There are a variety of ways to calculate it. One well known author/service weights each individual option's implied volatility by its trading volume and its distance in or out-of-the-money. Another popular service calculates it by ...


1

You are correct - there is not a single implied vol for a stock. You'd have to ask your broker to be certain, but most likely they are quoting the at-the-money (ATM) vol (implied vol for the put or call with the strike closest to the current underlying price) for the prompt option contract (the contract set to expire next). It's possible they could be ...


1

Implied volatility is the volatility implied by plugging market prices and other observable variables into the Black-Scholes formula and solving for volatility of the underlying that would lead to that price. I see no evidence in your post that you are using market prices. If you use made-up prices, you can solve for implied volatility but there is no ...


1

With a delta-neutral position using options only, you are essentially trading volatility. OTM options have a lower sensitivity to volatility (vega) than ITM options do, so your expected return will be less with ITM options (but the risk is lower, too).


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ode2k noted the liquidity can very wildly especially 9 months out and there will be little volume even in the largest stocks. Victor noted standard measures of liquidity don't always apply cleanly to options as they are priced using a hybrid of model and market inputs. So your question is generally very hard to answer on SE, but you can get an answer ...


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people are willing to pay higher premiums for options when stocks go down. Obviously the time value and intrinsic value and interests rates of the option doesn't change because of this so the miscalculation remainder is priced into the implied volatility part of the formula. Basically, anything that suggests the stock price will get volatile (sharp moves ...


1

Changes in implied volatility are caused by many things, of course, and it is tough to isolate the effect you are describing, but let's try to generalize for a moment. Implied volatility is generally a measure of how much expect uncertainty there is about the future price of the stock. Uncertainty generally is higher in periods including earnings ...


1

Yes. You could also change it by narrowing or widening the movements of the underlying stock. If there are any other market participants who have more capital than you who disagree that IV should be higher or lower, then you may find you run out of capital before making any meaningful change in IV. However, be aware that doing transactions that are not ...


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