20 lines
1.3 KiB
Plaintext
20 lines
1.3 KiB
Plaintext
8. Realized Volatility Falls, Implied
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Volatility Remains Constant
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This volatility shift can be marked by a volatility convergence, divergence,
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or crossover. Exhibit 14.9 shows the realized volatility falling from around
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30 percent to about 23 percent while IV hovers around 25. The crossover
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here occurs around the middle of February.
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EXHIBIT 14.9 Realized volatility falls, implied volatility remains constant.
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Source : Chart courtesy of iVolatility.com
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The relative size of this volatility change makes the interpretation of the
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chart difficult. The last half of September saw around a 15 percent decline
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in realized volatility. The middle of October saw a one-day jump in realized
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of about 15 points. Historical volatility has had several dynamic moves that
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were larger and more abrupt than the seven-point decline over this six-week
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period. This smaller move in realized volatility is not necessarily an
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indication of a volatility event. It could reflect some complacency in the
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market. It could indicate a slow period with less trading, or it could simply
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be a natural contraction in the ebb and flow of volatility causing the
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calculation of recent stock-price fluctuations to wane.
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What is important in this interpretation is how the options market is
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reacting to the change in the volatility of the stock—where the rubber hits |