I just have a quick question about implied volatility and options. I'm using black scholes here - https://www.hoadley.net/options/optiongraphs.aspx? For the volatility would I put historic volatility or relative volatility. Also, if I'm trading a put option wouldn't volatility be the opposite. So it the market is selling off wouldn't the volatility be increasing. If so, how would I find this volatility Thanks, Eric
Question about options
- Thread starter lasner
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Nope! For volatility, you use the implied volatility of the specific option! If you have the option price, you can determine the IV. Else if you have the IV, you can determine the price.
What I'm trying to figure out is what the volatility will be in a future sell off. So I have the IV when I buy the put options but I'm just trying to guess where the IV will be if there is a large sell off and I'm then trying to then sell the options during the large sell off. So for example I guess I can use historical volatility to try to forecast where the IV will be. This will help me in determining which options to buy (in the money or out of the money). I have a chart of Pan American here with historical volatility on it. You can see during the sell off in 2008 the volatility went through the roof. During October 2008 it was around 95- 100%
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Got it! Thanks! I think what I need is the historical volatility to try to determine the future price of the options I will buy. Basically I'll try to forecast the IV based on what happened in the past. I think what you have here gives me the current IV which I guess I will already know.
Yes, that is a very relevant inquiry. You want to model how much IV will pop in case of a large selloff. I suppose you are already looking at the VIX. You will find a lot of studies on it. Perhaps, the methods employed can provide guidance and inspiration.
FYI, the vol of commodities behave differently from equities. There is usually more convexity to the upside but there are also tighter correlations during major asset crashes which would give you the opposite behaviour.
FYI, the vol of commodities behave differently from equities. There is usually more convexity to the upside but there are also tighter correlations during major asset crashes which would give you the opposite behaviour.
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that’s the art of volatility trading.
A useful site that will give you free HV/IV data for a year is: https://www.ivolatility.com/options.j?ticker=PAAS:NASDAQ&R=1&period=12&chart=2&vct=
