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 ...
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3
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 ...
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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 &...
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1
vote
IV applied to Buying Vs. Selling Option Contracts!
It is all relative.
Comparing IV to historical vol (HV) - also called realized volatility (RV) - is not necessarily useful for at least two reasons:
1 ) Empirically, IV tends to overestimate RV, ...
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1
vote
IV applied to Buying Vs. Selling Option Contracts!
Low IV - compared to what?
If you believe IV is low compared to HV over some time frame, it makes sense to buy low, sell high by going long vega, i.e. buying calls and/or puts.
Conversely, if you ...
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1
vote
Why do implied volatility changes at different strike prices exactly coincide with one another?
If it were not related, you would get lots of arbitrage opportunities. This answer shows how to use SVI to fit a vol surface from market quotes.
If you look at these two fictional examples, you will ...
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1
vote
How to compute IVx (Implied volatility for a specific expiration) and the expected move with options?
If you assume that IV is a forward looking measure of the annual standard deviation of the stock, method 3 (and method 2 if you use 1.25, not 0.85) is correct.
TL;DR (explanation)
Straddles follow the ...
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1
vote
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 ...
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