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On the other hand, when IV is high, options are more expensive, meaning it might be a good time to sell options if you expect the volatility of the underlying stock to decline.
Implied volatility, a forward-looking and subjective measure, differs from historical volatility because the latter is calculated from known past returns of a security. To understand where implied volatility stands in terms of the underlying, implied volatility rank is used to understand its implied volatility from a one-year high and low IV.
CBOE Volatility Index (VIX) from December 1985 to May 2012 (daily closings) In finance, volatility (usually denoted by "σ") is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices.
The implied volatility surface simultaneously shows both volatility smile and term structure of volatility. Option traders use an implied volatility plot to quickly determine the shape of the implied volatility surface, and to identify any areas where the slope of the plot (and therefore relative implied volatilities) seems out of line.
When will the high volatility in the stock market come to an end? Although that seems like a good question, it may be the wrong one to ask for investors who are only worried about the end of the ...
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To an option trader engaging in volatility arbitrage, an option contract is a way to speculate in the volatility of the underlying rather than a directional bet on the underlying's price. If a trader buys options as part of a delta-neutral portfolio, he is said to be long volatility. If he sells options, he is said to be short volatility. So ...
Oil prices are notoriously volatile. Over the past year, crude oil has topped out around $90 a barrel and been down in the $60s. That volatility can have a big impact on the cash flows produced by ...