The ATM strike with Spot at 2926 is 2925
The 2925 Straddle is 47.05
The 1 SD implied move is Straddle price 47.05 x 1.25 = 58.80
Make any more sense ?
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Using implied volatility to estimate range
- Thread starter Grantx
- Start date
The ATM strike with Spot at 2926 is 2925
The 2925 Straddle is 47.05
The 1 SD implied move is Straddle price 47.05 x 1.25 = 58.80
Make any more sense ?
I use IV to see how much more or less I'm paying on premium, but that's about it (compared to HV). Like you said, I don't see much point for directional plays using IV or any given range. If looking for range, you'd have a better idea looking at OI and volume.I don’t believe in estimating the range using IV. It’s a false lead, it’s bs. I never understood why people even look at it and try to conclude the expected range.
Imagine that everyone in the world was using some way to estimate the range and then priced the options accordingly. So then the options would be priced based on estimated range, but what would be used to calculate that estimated range in the first place? They’d have to use something to estimate the range first and then price the options. But it’s the opposite: no one knows anything about expected range and options aren’t priced based on some imaginary expected range.
The “expected range” exists only because some guy noticed that IV can be used to calculate “something” that he proudly named “expected range”. Then everyone started using this term as if it meant anything.
While the actual expected range is based on historical volatility (historical ranges) that is actually used to calculate a base price of an option, before incorporating IV. IV is just a result of supply and demand, and some future events with unknown outcome. The IV can still be used to calculate some things including "some ranges" and to trade better, but not to calculate the actual expected range you're thinking of.
I use IV to see how much more or less I'm paying on premium, but that's about it (compared to HV). Like you said, I don't see much point for directional plays using IV or any given range. If looking for range, you'd have a better idea looking at OI and volume.
Yeah, there is also a proof: if IV was really determining an expected range, then the IV would be decreasing to zero when the stock price is nearing the end of that range. But the opposite happens: once the stock price reaches that “range”, poof, now IV is x times higher and we have a new completely different expected range that’s even wider then previously. So even logically this is bs by default.
Last edited: