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+736 Part VI: Measuring and Trading Volatility 
+Once again, consider Figure 36-3. While it is difficult to discern from the graph 
+alone, the 10th percentile of $OEX composite implied volatility, using all of the data 
+points given, is 17%. The line that marks this level (the tenth percentile) is noted on 
+the right side of the scatter diagram. It is quite easy to see that the LEAPS options 
+rarely trade at that low volatility level. 
+In Figure 36-3, the distance between the curved lines is much greater on the 
+left side (i.e., for shorter-term options) than it is on the right side (for longer-term 
+options). Thus, it's difficult for the longer-term options to register either an extreme­
+ly high or extremely low implied volatility reading, when all of the options are con­
+sidered. Consequently, LEAPS options will rarely appear "cheap" when one looks at 
+their percentile of implied volatility, including all the short-term options, too: 
+One might say that, if he were going to buy long-term options, he should look 
+only at the size of the volatility range on the right side of the scatter diagram. Then, 
+he could make his decision about whether the options are cheap or not by only com­
+paring the current reading to past readings of long-term options. This line of think­
+ing, though, is somewhat fallacious reasoning, for a couple of reasons: First, if one 
+holds the option for any long period of time, the volatility range will widen out and 
+there is a chance that implied volatility could drop substantially. Second, the long­
+term volatility range might be so small that, even though the options are initially 
+cheap, quick increase in implied volatility over several deciles might not translate into 
+much of a gain in price in the short term. 
+FIGURE 36-3. Implied volatilities of $OEX options over several 
+years. 
+50 
+45 
+40 
+~ 35 
+~ 30 
+g 25 "O 
+.91 20 C. 
+E 15 -0th 
+10 
+5 
+0 
+0 10 20 30 40 
+Time to Expiration (months)