karennma
8,057 posts
msg #89108
- Ignore karennma |
3/4/2010 9:43:07 PM
how'd the margins get screwed up?
Straken?
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karennma
8,057 posts
msg #89109
- Ignore karennma
modified |
3/4/2010 9:43:55 PM
What is Implied Volatility?
The term implied volatility refers to an expectation of volatility in the underlying asset from the present till the options expiration, using current options pricing data as a basis. The real benefit of implied volatility is in the fact that it allows us to estimate the size of a move, up or down. The higher the number, the greater the expectation of volatility and price movement in the underlying.
As you can see, the greater the volatility that is presented by an asset, the more expensive an option becomes due to the fact that it has a greater chance of achieving its target. There is also a tendency for implied volatility to increase when the market is bearish and decrease when it is bullish. This occurs due to the fact that the public associates higher levels of risk in a downtrending market versus an uptrending one.
Source: http://www.mysmp.com/options/implied-volatility.html
Implied Volatility - IV
What Does Implied Volatility - IV Mean?
The estimated volatility of a security's price. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.
Implied volatility is sometimes referred to as "vols."
Investopedia explains Implied Volatility - IV
In addition to known factors such as market price, interest rate, expiration date, and strike price, implied volatility is used in calculating an option's premium.
Source: http://www.investopedia.com/terms/i/iv.asp
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karennma
8,057 posts
msg #89110
- Ignore karennma |
3/4/2010 9:55:53 PM
The Greeks iin Options Trading ...
Delta - sensitivity of option price to minor changes in underlying price
Gamma - sensitivity to larger changes in underlying price (or sensitivity of Delta)
Theta - option price decay with time
Vega - sensitivity to Implied Volatility, or, in other words, to mispricing
Rho - sensitivity to the market interest rates level
Alpha - Gamma to Theta ratio
How can all this be included into one value called Risk? We’ve chosen the single main risk factor, leaving the secondary ones out. Sure, it is a simplification, but still gives a good feeling of the Risk involved.
If you do not have time to consider the details, a brief answer to what Risk is (in terms of our Basic Scanner) is as follows:
if you intend to Buy an option - the Risk is Theta
if you intend to Sell an option - the Risk is Gamma
if not sure - the Risk is Vega
Now, the detailed information of how this Risk measure was derived. As a first step, we’ve left out Delta, Rho and Alpha for the following reasons:
Delta: no reason to account for this, since Moneyness parameter already gives a fairly good estimate of Delta. ATM options have Delta about 50 % (by absolute value), ITM - close to 100 % and OTM - close to zero. Just to make things clear, Call option having Delta of 100 % loses $1 for each $1 decline in underlying price; Put option - the same for each $1 advance.
Source: http://www.ivolatility.com/doc/RT_Options_Scanner.pdf
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