28 lines
1.9 KiB
Plaintext
28 lines
1.9 KiB
Plaintext
738 Part VI: Measuring and Trading Volatility
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FIGURE 36-4.
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$OEX implied versus historical volatility.
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10
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Implied minus Actual 1999 Date
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ity of $OEX options encompasses all the $OEX options, so it is different from the
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Volatility Index ($VIX), which uses only the options closest to the money. By
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using all of the options, a slightly different volatility figure is arrived at, as com
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pared to $VIX, but a chart of the two would show similar patterns. That is, peaks
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in implied volatility computed using all of the $OEX options occur at the same
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points in time as peaks in $VIX.
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(b) The actual volatility on the graph is a little different from what one normally
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thinks of as historical volatility. It is the 20-day historical volatility, computed 20
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days later than the date of the implied volatility calculation. Hence, points on the
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implied volatility curve are matched with a 20-day historical volatility calculation
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that was made 20 days later. Thus, the two curves more or less show the predic
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tion of volatility and what actually happened over the 20-day period. These actu
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al volatility readings are smoothed as well, with a 20-day moving average.
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(c) The difference between the two is quite simple, and is shown as the bottom
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curve on the graph. A "zero" line is drawn through the difference.
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When this "difference line" passes through the zero line, the projection of
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volatility and what actually occurred 20 days later were equal. If the difference line
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is above the zero line, then implied volatility was too high; the options were over
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priced. Conversely, if the difference line is below the zero line, then actual volatility
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turned out to be greater than implied volatility had anticipated. The options were
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underpriced in that case. Those latter areas are shaded in Figure 36-4. Simplistically,
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you would want to own options during the shaded periods on the chart, and would
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want to be a seller of options during the non-shaded areas. |