It is correct to say that very option contract has an associated IV value and the IV of a stock is a single number based on the IV values of a set of ATM options for the stock? Thanks!
If the formula used to calculate IV is historically and objectively wrong - by what appears to be a consistent, quantifiable percentage - why has the formula not been updated to correct for this? Or is it the case that this formula has the smallest average margin of error(that we've found) and we can't really do much better?
The formula for IV isn't wrong it's just that as humans and even computers we cannot accurately predict the future. So when the future plays out it's always less volatile than expected.
at 22:22 you cannot change the option price by changing vol to whatever you want if that is possible anyone would change the vol reduce the price and place an order.
Hi! In TOS in the option statistics there are some confusing numbers about HV and IV. For example FB IV 52wk hi and lo migh be .5 and .1. Then Current IV is 20%. Does that mean it is .2?
Very worthwhile clear explanation; I am going to send this to one of my beginning option students.
Great video! Well explained and backed up by actual data.
Great job!! Really very helpful.
thanks
It is correct to say that very option contract has an associated IV value and the IV of a stock is a single number based on the IV values of a set of ATM options for the stock?
Thanks!
Yep generally correct and the number of ATM strikes and weighting you use determines IV.
If the formula used to calculate IV is historically and objectively wrong - by what appears to be a consistent, quantifiable percentage - why has the formula not been updated to correct for this? Or is it the case that this formula has the smallest average margin of error(that we've found) and we can't really do much better?
The formula for IV isn't wrong it's just that as humans and even computers we cannot accurately predict the future. So when the future plays out it's always less volatile than expected.
What software are you using when showing the probability of exp cones?
Just my broker platform at thinkorswim: optionalpha.com/tos
at 22:22 you cannot change the option price by changing vol to whatever you want if that is possible anyone would
change the vol reduce the price and place an order.
Didn't say you could - we simulated an IV change so you could see the impact on optino pricing.
option*
Hi! In TOS in the option statistics there are some confusing numbers about HV and IV. For example FB IV 52wk hi and lo migh be .5 and .1. Then Current IV is 20%. Does that mean it is .2?
Yes .20
Thanks!