Historical vs. Implied Options Volatility - Options Mechanics

[@nancypickering8217]

Very worthwhile clear explanation; I am going to send this to one of my beginning option students.

[@ke_1234]

Great video! Well explained and backed up by actual data.

[@alexgold432]

Great job!! Really very helpful.

[@meghacapital4604]

thanks

[@cameronstate]

If the formula used to calculate IV is historically and objectively wrong - by what appears to be a consistent, quantifiable percentage - why has the formula not been updated to correct for this? Or is it the case that this formula has the smallest average margin of error(that we've found) and we can't really do much better?

[@OptionAlpha]

The formula for IV isn't wrong it's just that as humans and even computers we cannot accurately predict the future. So when the future plays out it's always less volatile than expected.

[@ljl451]

It is correct to say that very option contract has an associated IV value and the IV of a stock is a single number based on the IV values of a set of ATM options for the stock? Thanks!

[@OptionAlpha]

Yep generally correct and the number of ATM strikes and weighting you use determines IV.

[@Tejas_Shah]

What software are you using when showing the probability of exp cones?

[@OptionAlpha]

Just my broker platform at thinkorswim: optionalpha.com/tos

[@scheherazade4617]

Hi! In TOS in the option statistics there are some confusing numbers about HV and IV. For example FB IV 52wk hi and lo migh be .5 and .1. Then Current IV is 20%. Does that mean it is .2?

[@OptionAlpha]

Yes .20

[@scheherazade4617]

Thanks!

[@jamesp8247]

at 22:22 you cannot change the option price by changing vol to whatever you want if that is possible anyone would change the vol reduce the price and place an order.

[@OptionAlpha]

Didn't say you could - we simulated an IV change so you could see the impact on optino pricing.

[@OptionAlpha]

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