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training_data/curated/text/5ed72586a6841e872accf2ebd7a47f9fea1454f212eeae680cbf8831022d2d73.txt

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+Should HV and IV Be the Same?
+Most option positions have exposure to volatility in two ways. First, the
+profitability of the position is usually somewhat dependent on movement
+(or lack of movement) of the underlying security. This is exposure to HV.
+Second, profitability can be affected by changes in supply and demand for
+the options. This is exposure to IV. In general, a long option position
+benefits when volatility—both historical and implied—increases. A short
+option position benefits when volatility—historical and implied—decreases.
+That said, buying options is buying volatility and selling options is selling
+volatility.
+The Relationship of HV and IV
+It’s intuitive that there should exist a direct relationship between the HV and
+IV. Empirically, this is often the case. Supply and demand for options, based
+on the market’s expectations for a security’s volatility, determines IV.
+It is easy to see why IV and HV often act in tandem. But, although HV
+and IV are related, they are not identical. There are times when IV and HV
+move in opposite directions. This is not so illogical, if one considers the key
+difference between the two: HV is calculated from past stock price
+movements; it is what has happened. IV is ultimately derived from the
+market’s expectation for future volatility.
+If a stock typically has an HV of 30 percent and nothing is expected to
+change, it can be reasonable to expect that in the future the stock will
+continue to trade at a 30 percent HV. By that logic, assuming that nothing is
+expected to change, IV should be fairly close to HV. Market conditions do
+change, however. These changes are often regular and predictable. Earnings
+reports are released once a quarter in many stocks, Federal Open Market
+Committee meetings happen regularly, and dates of other special
+announcements are often disclosed to the public in advance. Although the
+outcome of these events cannot be predicted, when they will occur often
+can be. It is around these widely anticipated events that HV-IV divergences
+often occur.