28 lines
1.9 KiB
Plaintext
28 lines
1.9 KiB
Plaintext
Calculating Volatility Data
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Accurate data are essential for calculating volatility. Many of the volatility
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data that are readily available are useful, but unfortunately, some are not.
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HV is a value that is easily calculated from publicly accessible past closing
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prices of a stock. It’s rather straightforward. Traders can access HV from
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many sources. Retail traders often have access to HV from their brokerage
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firm. Trading firms or clearinghouses often provide professional traders
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with HV data. There are some excellent online resources for HV as well.
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HV is a calculation with little subjectivity—the numbers add up how they
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add up. IV, however, can be a bit more ambiguous. It can be calculated
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different ways to achieve different desired outcomes; it is user-centric. Most
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of the time, traders consider the theoretical value to be between the bid and
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the ask prices. On occasion, however, a trader will calculate IV for the bid,
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the ask, the last trade price, or, sometimes, another value altogether. There
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may be a valid reason for any of these different methods for calculating IV.
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For example, if a trader is long volatility and aspires to reduce his position,
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calculating the IV for the bid shows him what IV level can be sold to
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liquidate his position.
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Firms, online data providers, and most options-friendly brokers offer IV
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data. Past IV data is usually displayed graphically in what is known as a
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volatility chart or vol chart. Current IV is often displayed along with other
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data right in the option chain. One note of caution: when the current IV is
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displayed, however, it should always be scrutinized carefully. Was the bid
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used in calculating this figure? What about the ask? How long ago was this
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calculation made? There are many questions that determine the accuracy of
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a current IV, and rarely are there any answers to support the number.
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Traders should trust only IV data they knowingly generated themselves
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using a pricing model. |