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training_data/relevant/text/08c3bbe722b3607d30755e2a6d0a00341ad8ff4a2d0cb2316a770764e14d1bcc.txt

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+Chapter 37: How Volatility Affects Popular Strategies 
+Stock Price: 
+Strike Price: 
+Time Remaining: 
+Implied Volatility: 
+Theoretical Call Value: 
+100 
+100 
+1 month 
+38.1% 
+4.64 
+759 
+So, if implied volatility increases from 20% to 26% over the first month, then 
+this call option would still be trading at the same price - 4.64. That's not an unusual 
+increase in implied volatility; increases of that magnitude, 20% to 26%, happen all 
+the time. For it to then increase from 26% to 38% over the next month is probably 
+less likely, but it is certainly not out of the question. There have been many times in 
+the past when just such an increase has been possible - during any of the August, 
+September, or October bear markets or mini-crashes, for example. Also, such an 
+increase in implied volatility might occur if there were takeover rumors in this stock, 
+or if the entire market became more volatile, as was the case in the latter half of the 
+1990s. 
+Perhaps this example was distorted by the fact that an implied volatility of 20% 
+is a fairly low number to begin with. What would a similar example look like if one 
+started out with a much higher implied volatility - say, 80%? 
+Example: Making the same assumptions as in the previous example, but now setting 
+the implied volatility to a much higher level of 80%, the Black-Scholes model now 
+says that the call would be worth a price of 16.45: 
+Stock Price: 
+Strike Price: 
+Time Remaining: 
+Implied Volatility: 
+Theoretical Call Value: 
+100 
+100 
+3 months 
+80% 
+16.45 
+Again, one must ask the question: "If a month passes, what implied volatility 
+would be necessary for the Black-Scholes model to yield a price of 16.45?" In this 
+case, it turns out to be an implied volatility of just over 99%. 
+Stock Price: 
+Strike Price: 
+Time Remaining: 
+Implied Volatility: 
+Theoretical Call Value: 
+100 
+100 
+2 months 
+99.4% 
+16.45