Implied volatility

Financial Times  Apr 20  Comment 
A gauge of pound’s implied volatility has fallen, but analysts wary of calling shift in sentiment
Benzinga  Apr 11  Comment 
Numerous pricing reports for the UK economy come out on Tuesday, April 12, 2016, at 4:30 AM ET. There is a strategy however, that works well for these kinds of news events. Using Nadex spreads, one can enter the night before at 11:00 PM ET for...
Financial Times  Apr 7  Comment 
Implied volatility against the dollar pushed above 16% for the first time in 6 years
Financial Times  Feb 10  Comment 
Strong demand pushes implied volatility for WTI to the highest level since 2009
Mondo Visione  Oct 22  Comment 
STOXX Limited, a leading provider of innovative, tradable and global index concepts, today announced the launch of the V-VSTOXX indices, which measure the implied volatility of the corresponding VSTOXX indices. “As markets continue to react to...
Benzinga  Sep 28  Comment 
In previous articles in this series, (see What Is Premium?, Premium: How To Calculate And Understand It and Premium: Make It Or Pay It), premium has been defined as time value. Implied Volatility and expected movement have been explained in...
Benzinga  Sep 22  Comment 
There are numerous reports that come out monthly that give indication to the state of the economy in countries around the world. Many of them can be good opportunities for strategically planned trades. Two such reports that come out...
Benzinga  Jul 30  Comment 
According to Options and Volatility, shares of Sunedison Inc (NASDAQ: SUNE) saw unusually high options activity on Wednesday. Notably, the August monthly August 25 calls traded 10,869 contracts versus only 122 open interest. The August 24 puts...
Clusterstock  May 1  Comment 
By Saqib Iqbal Ahmed NEW YORK (Reuters) - Options traders appear poised for a big move in McDonald's Corp's shares as the world's biggest restaurant chain is set to unveil a much-awaited turnaround plan on Monday, and bullish bets have picked up...
The Economic Times  May 1  Comment 
The one-week sterling/dollar implied volatility, which expires on May 8 rose to 14.775 percent, its highest since the Scottish independence referendum.


Implied volatility is a measure of traders perceived risk in the underlying asset of an option.

Implied volatility is different from volatility, in the sense that implied volatility represents expectations about future fluctuations while volatility is observed by looking at past data.

Volatility expectations, or implied volatility, is deduced from option prices (both call and put) on an underlying security -- since these expectations are reflected in market prices of the option. Higher fluctuation expectations mean that the option has a greater probability of ending in the money, and thus the option commands a higher price and vice versa. By inputting the option price, along with other variables such as maturity, interest rate, strike price and underlying security price, in a pricing model (e.g. Black-Scholes) it is possible to derive an estimate of the investor's expectation of future volatility.

To derive a fair price for a particular option, the historical volatility is used. Often, though, the price that an option trades for on an exchange is different than the theoretical price, and the volatility that is used to derive the exchange price is referred to as implied volatility.

Implied volatility exhibits a skew since it is higher on options below the current price of the underlying security, than those above the current price of the underlying.

In practice, Implied Volatility is also the variable market makers play around with in order to make a higher profit on options that are suddenly in demand. This variability does not allow Black Scholes model to calculate implied volatility accurately.

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