Despite a degree in finance and a developed understanding of markets, IV was confusing the hell out of me in grad class. Four videos later, I checked out this overview. Within the first 3 minutes, my questions were answered. Straight to the point, technical, but not too wordy. Thanks Mike!
Years later and still golden info. John from 2024 sends a loud "Thank You" to the entire Tasty Team for their help in understanding the complex world and workings of options.
Excellent! I kept thinking that a .32 delta would reflect the 1SD, but its the both sides of the market concept that explains it. I thought it was related to two sides of the market, but wanted to verify it and probably went through 20 different links of articles and videos and this is the first one that CLEARLY explains it. Thank you!
I've watched several videos on SD now, and none of them have walked through a specific example of how to use it while picking strike prices on a stock. Does anyone know of one that does? I get the theory, but knowing how to apply it sure would be helpful.
slightly confused about the relationships between IV, options price and vega. IV is back-calculated from the market price of the option, taking into account the price of the underlying, DTE, dividends, risk-free return rate. if the other factors remain relatively constant, and the price of the option increases due to increased demand of that option, that implies that the market anticipates greater volatility, and IV increases. vega is the predicted increase in the price of the option given a 1% increase in IV. for positive vega, an increase in IV should cause the options price to increase. am i wrong in thinking this is somewhat cyclical?
Thanks for the explanation Mike! I have a sample I took of 625 observations I took over a year ranging from $81.57 to $86. The Mean I ended up with is: $83.84 If I do a Standard Deviation calculation in Excel the Standard Deviation I obtain is 1.32 To know the volatility; How do I convert that 1.32 to percentage?
Quite vague. Is it possible to explain with data set and values for options, IV & SD to understand how it makes sense. Presentation does not make sense. What value - option price or strike price - you refer to ?
Sorry I did not see this! SPY is currently trading for $280. In APRIL, the 1SD range would be reflected through the 16 delta options - the 267 put and 290 call have 16 delta. In other words, the market is expecting 68% of occurrences to range between 267 and 290. Selling this strangle would yield a credit of $1.88 or $188 dollars. If IV is overstated, and the market stays within 267 and 290, I would keep that $188 as profit at expiration. If IV contracted from these levels, that would mean the expected move also decreases, along with the price of these options. I might be able to buy back this trade for less than $1.88 which would net a profit prior to expiration. I hope this helps!
Mike, is each occurrence an average of stock price in a time frame? When you say that the normal distribution is plotted with randomized 10000 occurrences...I’m wondering how the occurrences are extracted
No that is OTM - 2.5% chance of going ITM with an OTM option. When you consider both sides together, that's where you get the 95% range of 2SD outcomes
Please define exactly what the X and Y axes refer to in the diagram at the five minute mark titled standard deviation visualized. I think the X axis is the strike price and the Y axis is the percent chance that the option will expire in the money. Is that correct? Thanks!
That's correct: X-axis is strike range, with the vertical line being ATM and the options to the left of that line being OTM puts, and OTM calls to the right. Y-axis is the prob. ITM% for those options.
It should not be called "Option Trading" but rather "Option Marketing" because for a short period of time you are marketing your account to 'buy' stock at a cheaper price or ask someone to 'buy' our stock at a higher price. Its playing keep away from the market price.
it explains nothing how do you calculate a 1sd using IV all you say is 1 sd well that means nothing at all if I have a stock trading at $15 with an IV 45 what is the 1sd values??????????
All you need is the ability to see prob ITM% on your platform, or you can use delta as a proxy. The 16 delta or 16 prob ITM% OTM options will reflect the 1SD range for that cycle.
SPY is currently trading for $280. In APRIL, the 1SD range would be reflected through the 16 delta options - the 267 put and 290 call have 16 delta. In other words, the market is expecting 68% of occurrences to range between 267 and 290. Selling this strangle would yield a credit of $1.88 or $188 dollars. If IV is overstated, and the market stays within 267 and 290, I would keep that $188 as profit at expiration. If IV contracted from these levels, that would mean the expected move also decreases, along with the price of these options. I might be able to buy back this trade for less than $1.88 which would net a profit prior to expiration. I hope this helps!
@@richardfearing4751 you can use Delta as an approximation for probability a stock will be in the money at expiration. A 16 Delta would typically have about a 16 percent probability of being itm.
@@tastyliveshow which IV( CE or PE side) to take for calculation. For example, current stock price is 100. 100 CE IV is 25 and 100 PE IV is 40. In such way many other strike price have different IV. Which IV to consider for 1SD and 2SD calculation?
![[UNCUT] เก็บ "สจ.โต้ง" เอี่ยวมาเฟีย รู้ตัวคนบงการ ก่อนสั่งลั่นไก I คนดังนั่งเคลียร์ I 13 ธ.ค.67](http://i.ytimg.com/vi/o-J_p62D40w/mqdefault.jpg)
Despite a degree in finance and a developed understanding of markets, IV was confusing the hell out of me in grad class. Four videos later, I checked out this overview. Within the first 3 minutes, my questions were answered. Straight to the point, technical, but not too wordy. Thanks Mike!
Years later and still golden info. John from 2024 sends a loud "Thank You" to the entire Tasty Team for their help in understanding the complex world and workings of options.
Excellent! I kept thinking that a .32 delta would reflect the 1SD, but its the both sides of the market concept that explains it. I thought it was related to two sides of the market, but wanted to verify it and probably went through 20 different links of articles and videos and this is the first one that CLEARLY explains it. Thank you!
The Zep intro pepped me right up! I now ready to learn! Excellent!
This is one of the best explanation of IV I have seen...and I have seen a lot of them
I've watched several videos on SD now, and none of them have walked through a specific example of how to use it while picking strike prices on a stock. Does anyone know of one that does? I get the theory, but knowing how to apply it sure would be helpful.
Wow! Clear and concise explanation. Thank you, Mike!
slightly confused about the relationships between IV, options price and vega.
IV is back-calculated from the market price of the option, taking into account the price of the underlying, DTE, dividends, risk-free return rate.
if the other factors remain relatively constant, and the price of the option increases due to increased demand of that option, that implies that the market anticipates greater volatility, and IV increases.
vega is the predicted increase in the price of the option given a 1% increase in IV. for positive vega, an increase in IV should cause the options price to increase.
am i wrong in thinking this is somewhat cyclical?
Very good presentation. IV is very clear now. 🙂
Thank you Mike, very well done.
best explaination you will ever find on this subject🙏
Great Mike !
Thanks for the explanation Mike!
I have a sample I took of 625 observations I took over a year ranging from $81.57 to $86.
The Mean I ended up with is: $83.84
If I do a Standard Deviation calculation in Excel the Standard Deviation I obtain is 1.32
To know the volatility; How do I convert that 1.32 to percentage?
thank you. perfect
Quite vague. Is it possible to explain with data set and values for options, IV & SD to understand how it makes sense. Presentation does not make sense. What value - option price or strike price - you refer to ?
Sorry I did not see this! SPY is currently trading for $280. In APRIL, the 1SD range would be reflected through the 16 delta options - the 267 put and 290 call have 16 delta. In other words, the market is expecting 68% of occurrences to range between 267 and 290. Selling this strangle would yield a credit of $1.88 or $188 dollars. If IV is overstated, and the market stays within 267 and 290, I would keep that $188 as profit at expiration.
If IV contracted from these levels, that would mean the expected move also decreases, along with the price of these options. I might be able to buy back this trade for less than $1.88 which would net a profit prior to expiration.
I hope this helps!
Mike, is each occurrence an average of stock price in a time frame? When you say that the normal distribution is plotted with randomized 10000 occurrences...I’m wondering how the occurrences are extracted
^^^????
Very good explanation I didn't really know what implied volatility means
Were you a weather man in a different life? lol. Too perfect 👍🏽
you are awesome!! thnks!
what do you mean by seeing one side of market ?
Selling just a put or just a call, instead of taking risk on both sides by selling both.
Hello , what about in Tastytrade when it says OTM = 100 % and IV = 5 % ?
can you shoot an example of this to support@tastytrade.com?
Man. Thank you.
I have a question. Is the 2.5% ITM of the second standard deviation deep ITM?
No that is OTM - 2.5% chance of going ITM with an OTM option. When you consider both sides together, that's where you get the 95% range of 2SD outcomes
greate explanation man
Damn this is high level
Please define exactly what the X and Y axes refer to in the diagram at the five minute mark titled standard deviation visualized. I think the X axis is the strike price and the Y axis is the percent chance that the option will expire in the money. Is that correct? Thanks!
That's correct: X-axis is strike range, with the vertical line being ATM and the options to the left of that line being OTM puts, and OTM calls to the right. Y-axis is the prob. ITM% for those options.
great teaching thank yoou
hey I am also youtuber in stock market,can i have your time fr conversation on how you setup system for shooting this videos
Thanks, it was quite informative.
Grat explained good work
It should not be called "Option Trading" but rather "Option Marketing" because for a short period of time you are marketing your account to 'buy' stock at a cheaper price or ask someone to 'buy' our stock at a higher price. Its playing keep away from the market price.
it explains nothing how do you calculate a 1sd using IV all you say is 1 sd well that means nothing at all if I have a stock trading at $15 with an IV 45 what is the 1sd values??????????
All you need is the ability to see prob ITM% on your platform, or you can use delta as a proxy.
The 16 delta or 16 prob ITM% OTM options will reflect the 1SD range for that cycle.
@@tastyliveshow Do these adjust based on IV automatically in the broker platforms? I am using eTrade
Give a live example of stock
SPY is currently trading for $280. In APRIL, the 1SD range would be reflected through the 16 delta options - the 267 put and 290 call have 16 delta. In other words, the market is expecting 68% of occurrences to range between 267 and 290. Selling this strangle would yield a credit of $1.88 or $188 dollars. If IV is overstated, and the market stays within 267 and 290, I would keep that $188 as profit at expiration.
If IV contracted from these levels, that would mean the expected move also decreases, along with the price of these options. I might be able to buy back this trade for less than $1.88 which would net a profit prior to expiration.
I hope this helps!
@@tastyliveshow How did you know that 16 delta is 1Sd?
@@richardfearing4751 you can use Delta as an approximation for probability a stock will be in the money at expiration. A 16 Delta would typically have about a 16 percent probability of being itm.
@@tastyliveshow which IV( CE or PE side) to take for calculation. For example, current stock price is 100. 100 CE IV is 25 and 100 PE IV is 40. In such way many other strike price have different IV. Which IV to consider for 1SD and 2SD calculation?
@@drhardik3 It's the expiration's IV%, not the per strike IV. Just look at the expiration you're trading and you'll see the IV% number there.
The content is very good. But narration is not good.
I understood nothing of what you said.
Just another Guy that cannot seem to teach how this applies to a real chart and show when to make the TRADE!
Outing up an implied opening is a blatant attempt to steer the direction of the Dow, which should be illegal