Skip to main content
4 votes

why volatility increases price for ITM call options?

The answer by @Hart CO is intuitively correct but within a Black Scholes framework, this is actually quite a brain teaser as the probability of ITM options expiring ITM indeed decreases with ...
AKdemy's user avatar
  • 2,957
4 votes
Accepted

why volatility increases price for ITM call options?

Volatility is a measure of the expected price variance over time, up or down. Increased volatility means a wider range of expected prices, so the ITM call option is seen as both more likely to expire ...
Hart CO's user avatar
  • 70.5k
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
  • 2,957
2 votes

Is it very safe to short volatility with a small position?

Yes there is a flaw. VIX can exceed 100%. (consider the October 28-29 crash in 1929 --> resulted in a two-day loss of 24% in the Dow Jones Industrials Average, with two-week realized volatility ...
Marco's user avatar
  • 161
2 votes

why volatility increases price for ITM call options?

Let’s say the strike price is $20, current price is $30, and little volatility. The expected change is $0, with a small variance, so the option is worth $10: You will get $10, or two dollars more, or ...
gnasher729's user avatar
  • 23.3k
1 vote
Accepted

confusion about gamma and gamma portfolios

Greeks are mainly used for hedging purposes (and performance attribution). If you delta hedge, gamma essentially tells you have frequently you need to rebalance. However, from a portfolios overall ...
AKdemy's user avatar
  • 2,957
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
  • 2,957

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