40 lines
1.6 KiB
Plaintext
40 lines
1.6 KiB
Plaintext
730
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FIGURE 36-2.
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Sample stock chart.
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:::::::::r;~.w· r
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I
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, .. ~
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n
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I
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ll•• ~N
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IT
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Part VI: Measuring and Trading Volatllity
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:
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I
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I
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j
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j
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~
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JI
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• I'
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'Vn ~- A
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Its price movements have been less extreme in the near term.
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Again referring to Figure 36-2, note that shortly after point A, the stock jumped
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much higher over a short period of time. Price action like this increases the implied
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volatility dramatically. And, at the far right edge of the chart, the stock had stopped
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rising but was swinging back and forth in far more rapid fashion than it had been at
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most other points on the chart. Violent action in a back-and-forth manner can often
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produce a higher historical volatility reading that straight-line move can; it's just the
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way the numbers work out. So, by the far right edge of the chart, the 10-day histori
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cal volatility would have increased rather dramatically, while the longer-term meas
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ures wouldn't be so high because they would still contain the price action that
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occurred prior to point A.
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At the far right edge of Figure 36-2, these figures might apply:
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l 0-day historical volatility: 80%
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20-day historical volatility: 75%
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50-day historical volatility: 60%
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l 00-day historical volatility: 55%
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With this alignment of historical volatilities, one can see that the stock has been
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more volatile recently than in the more distant past. In Chapter 38 on the distribu
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tion of stock prices, we will discuss in some detail just which one, if any, of these his
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torical volatilities one should use as "the" historical volatility input into option and |