Skip to main content
8 votes
Accepted

How can I be short volatility on a stock without getting exposed to moves in the underlying?

You want to short volatility without exposure to underlying and you don't like strategies like a Butterfly because it has a limited range of profit. Unfortunately, you're looking for a unicorn. In ...
Bob Baerker's user avatar
  • 76.6k
5 votes

How is options implied volatility for a stock determined?

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 ...
Bruno Reis's user avatar
5 votes

How exactly is implied volatility assigned to an option's strike price?

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 ...
D Stanley's user avatar
  • 136k
4 votes

To calculate the VIX are SPX calls and puts simply compared against the current price of the SPX?

The VIX index is basically the square root of the theoretical fair variance swap strike. This logic was chosen because the metric allows to incorporate skewness and kurtosis (convexity) of the vol ...
AKdemy's user avatar
  • 2,803
4 votes
Accepted

Implied Volatility for a Stock

There's not a single "implied volatility" for a stock. Implied volatility by definition is the volatility implied by option prices. It's computed by taking an option pricing model (commonly ...
D Stanley's user avatar
  • 136k
4 votes
Accepted

Is Implied- and Historical Volatility based on solely Business days?

A) For historical vol (HV), also called realized vol (RV), usually the so called close-to-close estimator is used, but more sophisticated methods to estimate HV exist as well (see for example R). HV ...
AKdemy's user avatar
  • 2,803
3 votes

Why does increased volatility always mean higher call prices?

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. ...
ApplePie's user avatar
  • 2,279
3 votes
Accepted

Does Implied Volatilty factor in all known future events?

In short, yes. Implied volatility will capture any expected upcoming material announcements. There is also supply/demand impact bundled in which may inflate an option price, and by extension increase ...
Peacock's user avatar
  • 436
2 votes

How liquid is options market?

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 ...
ode2k's user avatar
  • 204
2 votes

How liquid is options market?

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 ...
Jack Swayze Sr's user avatar
2 votes

Implied or historical volatility to calculate theoretical options price with black scholes?

The answer by not-nick is wrong. At least for major exchanges like the CME (maybe there are some small exchanges with little option trading that use historical vol, but I would be very surprised). The ...
AKdemy's user avatar
  • 2,803
2 votes
Accepted

Implied or historical volatility to calculate theoretical options price with black scholes?

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 ...
not-nick's user avatar
  • 6,418
2 votes

What is the skew of a volatility smile?

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 ...
D Stanley's user avatar
  • 136k
2 votes

Why don't I get an implied volatility skew?

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 ...
farnsy's user avatar
  • 15.1k
2 votes

Does Black Scholes exhibit the volatility smile?

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 ...
nanoman's user avatar
  • 29.7k
2 votes

Does Black Scholes exhibit the volatility smile?

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 ...
D Stanley's user avatar
  • 136k
2 votes

Is this the right formula to use implied volatility to gauge probability of a stock being within a certain range?

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 ...
farnsy's user avatar
  • 15.1k
2 votes

How accurate is Implied Volatility in predicting future moves?

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 ...
farnsy's user avatar
  • 15.1k
2 votes
Accepted

How can IV give an indication of the markets opinion about a stock when there's no such thing as IV for a stock?

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 ...
D Stanley's user avatar
  • 136k
2 votes
Accepted

When using the VIX index, is it similar to calculating volatility?

The VIX is basically the option market's forecast of the volatility that will be realized in the S&P500 in the next 30 days. The index is calculated (simply said) as average implied volatility of ...
Petr H's user avatar
  • 794
2 votes

How to calc profit and loss on vol listed options

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 ...
D Stanley's user avatar
  • 136k
2 votes

How exactly is implied volatility assigned to an option's strike price?

Deep ITM options near expiration have very little time premium. They also tend to have very wide B/A spreads. Combine the two and you can have data distortion. YUMC = $37.21 7/17 $27.50 call is $9....
Bob Baerker's user avatar
  • 76.6k
2 votes

Why does increased volatility always mean higher call prices?

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" ...
nanoman's user avatar
  • 29.7k
2 votes
Accepted

Implied volatility for options

I have never put much credence in trading based on guesstimates of future price based on stats such as IV that may shift to different levels and remain there. Current price, current IV and delta are ...
Bob Baerker's user avatar
  • 76.6k
2 votes

Options : low IV = selling, high IV = buying?

It's more accurate to say buying pressure and selling pressure rather than volume, since technically the volume is the same on either side for executed trades (for every buyer there is a seller), and ...
D Stanley's user avatar
  • 136k
2 votes
Accepted

After an option skyrockets in price and IV, when will IV decay and drop?

There is no way to predict the future accurately. You could look at previous "spikes" in IV and see how long they lasted, but there's no fundamental formula that would tell you exactly (or ...
D Stanley's user avatar
  • 136k
2 votes
Accepted

Why do implied volatility changes at different strike prices exactly coincide with one another?

It does not suggest manipulation. To quote another answer: The efficient market hypothesis implies that the key driver of stock price changes is not trading volume but predictive information. The ...
nanoman's user avatar
  • 29.7k
2 votes

IV applied to Buying Vs. Selling Option Contracts!

It's not really "good" or "bad". Low IV simply means that the market does not expect the stock to move as much as one with higher IV. You could think of options with low IV to be &...
D Stanley's user avatar
  • 136k
1 vote

Options Volatility and Settlement during a merger and acquisition

Interesting question. I've traded options for decades along with a lot of volatility plays for earnings announcements and I've never experienced this issue. I also learned a long time ago that ...
Bob Baerker's user avatar
  • 76.6k
1 vote

When using the VIX index, is it similar to calculating volatility?

VIX will almost always be higher than realized (historical) volatility (RV) of the underlying for at least two reasons. 1 ) Empirically, IVOL tends to overestimate RV, commonly referred to as ...
AKdemy's user avatar
  • 2,803

Only top scored, non community-wiki answers of a minimum length are eligible