Using implied volatility for beginners

[MTE]

Quote from DarkProtoman:

So, let's say I've got a XYZ 50 call expiring 365 days from now, and XYZ is currently trading at $49.50. XYZ pays no dividends. The risk-free rate is 4.382%. The call is trading at $7.50. What would the volatility be, and what could affect it?...

Take an option pricing model and stick in the values you mentioned and then solve for volatility! Do you really expect me or anyone else here to do a basic calculation for you!?

Quote from DarkProtoman:

...and what could affect it? Things like quarterly earnings, news announcements, etc.? How should I best use this info?

Your question can easily be answered by reading a book on options. Also, as suggested by others, read thru some threads. This has been discussed numerous times here.

 

[MTE]

Quote from newguy05:

but if the stock has been very volatile to begin with say within the last 2 months, then the 46% IV would just be business as usual wouldnt it?

Isnt it more useful to show the ratio between the current IV vs the historical volatility instead? Is there such thing as historical volatility on the individual strike price bid/ask?

thanks

Of course it would be business as usual. I didn't make any reference to the absolute number as being high or low, just that, taken at face value, it is more useful than the premium amount.

And, yes, it is useful to compare current IV to previous levels of implied and historical volatility.