31 lines
1.3 KiB
Plaintext
31 lines
1.3 KiB
Plaintext
Finding Mispriced Options • 149
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strategies involving the simultaneous purchase and sale of multiple con-
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tracts to be a poor investment strategy.
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Implied Bid Volatility/Implied Ask Volatility
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Because the price is so different between the bid and the ask, the range of fu-
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ture stock prices implied by the option prices can be thought of as different
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depending on whether you are buying or selling contracts. Employing the
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graphic conventions we used earlier in this book, this effect is represented
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as follows:
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Implied price range implied
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by ask price volatility of 23.4%
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Implied price range implied
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by bid price volatility of 21.4%
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6/21/201612/24/20156/27/201512/29/20147/2/20141/3/20147/7/20131/8/20131/12/2012
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Oracle (ORCL)
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Price per Share
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60
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50
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40
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30
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20
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10
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-
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Because Oracle is such a big, liquid company, the difference between
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the stock prices implied by the different bid-ask implied volatilities is not
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large, but it can be substantial for smaller, less liquid companies. Looking
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at the ask implied volatility column, you will notice the huge difference
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between the far ITM options’ implied volatilities and those for ATM and
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OTM options. The data in the preceding diagram are incomplete, but
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if you were to graph all the implied volatility data, you would get the
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following: |