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training_data/relevant/text/907115f865e97673e92040b7bd07dc3ff19ab632194015d8b96b166f6a31401f.txt

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+906 Part VI: Measuring and Trading Volatility 
+Implied deviation = sqrt (sum of differences from mean) 2/(# options - 1) 
+XYZ:50 
+Implied 
+Option Volatility 
+October 45 call 21% 
+November 45 call 21% 
+January 45 call 23% 
+October 50 call 32% 
+November 50 call 30% 
+January 50 call 28% 
+October 55 call 40% 
+November 55 call 37% 
+January 55 call 34% 
+Average: 30.44% 
+Sum of ( difference from avg)2 = 389.26 
+Implied deviation = sqrt (sum of diff)2/(# options - 1) 
+= sqrt (389.26 I 8) 
+= 6.98 
+Difference 
+from Average 
+-9.44 
+-9.44 
+-7.44 
++ 1.56 
+-0.44 
+-2.44 
++9.56 
++6.56 
++3.56 
+This figure represents the raw standard deviation of the implied volatilities. To 
+convert it into a useful number for comparisons, one must divide it by the average 
+implied volatility. 
+P d . . Implied deviation ercent eV1at10n = A . 1. d verage imp ie 
+= 6.98/30.44 
+= 23% 
+This "percent deviation" number is usually significant if it is larger than 15%. 
+That is, if the various options have implied volatilities that are different enough from 
+each other to produce a result of 15% or greater in the above calculation, then the 
+strategist should take a look at establishing neutral spreads in that security or futures 
+contract. 
+The concept presented here can be refined further by using a weighted average 
+of the implieds ( taking into consideration such factors as volume and distance from the 
+striking price) rather than just using the raw average. That task is left to the reader.