As I understand it, IV is defined as an annualized 1 standard deviation range for an underlying. So what is the meaning of implied volatility for a strike? 1. The IV on each strike is calculated by inputting the market price of the option into the Black-Scholes model. If the pricing model calculates IV per strike, how do you get a value for the underlying as a whole? For example Tastyworks says that for January expiration SPY has an IV of 21.7%. Is this an average or other aggregation type formula that combines IV from all the strikes? Is there such a standard formula or do other trading platforms it differently? 2. For example the 250 put on SPY is 20 points out of the money and has a 23.76% IV. Does this mean that someone buying the 250 put for the current market price is valuing the volatility for this cycle at 23.76% and say someone else buying the at the money put (270 with 18.7% IV) for the current market price is valuing the volatility for this cycle at a lesser value?
The practical use of IV per strike is understanding the implied volatility of the price of that strike in the given expiration cycle. OTM options typically have a higher IV% per strike since they can multiply easily, where it's much harder for an ITM option to do so.
The VIX is the S&P implied volatility, so if there is an individual stock that is within the S&P 500, it could be reflective of what the individual stock's IV might be, but at the end of the day the VIX could be low but the individual stock's IV could be high, so it's important to check the individual stock itself.
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MIke is jacked!💪
Is there a way to track intra day volatility?
Mike Butler, Whiteboard Market Collector.
As I understand it, IV is defined as an annualized 1 standard deviation range for an underlying. So what is the meaning of implied volatility for a strike?
1. The IV on each strike is calculated by inputting the market price of the option into the Black-Scholes model. If the pricing model calculates IV per strike, how do you get a value for the underlying as a whole? For example Tastyworks says that for January expiration SPY has an IV of 21.7%. Is this an average or other aggregation type formula that combines IV from all the strikes? Is there such a standard formula or do other trading platforms it differently?
2. For example the 250 put on SPY is 20 points out of the money and has a 23.76% IV. Does this mean that someone buying the 250 put for the current market price is valuing the volatility for this cycle at 23.76% and say someone else buying the at the money put (270 with 18.7% IV) for the current market price is valuing the volatility for this cycle at a lesser value?
The practical use of IV per strike is understanding the implied volatility of the price of that strike in the given expiration cycle. OTM options typically have a higher IV% per strike since they can multiply easily, where it's much harder for an ITM option to do so.
Is individual stock’s IV correlated to VIX?
The VIX is the S&P implied volatility, so if there is an individual stock that is within the S&P 500, it could be reflective of what the individual stock's IV might be, but at the end of the day the VIX could be low but the individual stock's IV could be high, so it's important to check the individual stock itself.
@@tastyliveshow Stock has CE IV and PE IV. Does stock have his own IV value for calculation of 1 SD?
Nice voice crack my guy