20 lines
1.3 KiB
Plaintext
20 lines
1.3 KiB
Plaintext
4. Realized Volatility Remains Constant,
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Implied Volatility Rises
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Exhibit 14.5 shows that the stock is moving at about the same volatility
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from the beginning of June to the end of July. But during that time, option
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premiums are rising to higher levels. This is an atypical chart pattern. If this
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was a period leading up to an anticipated event, like earnings, one would
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anticipate realized volatility falling as the market entered a wait-and-see
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mode. But, instead, statistical volatility stays the same. This chart pattern
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may indicate a potential volatility-selling opportunity. If there is no news or
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reason for IV to have risen, it may simply be high tide in the normal ebb
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and flow of volatility.
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EXHIBIT 14.5 Realized volatility remains constant, implied volatility
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rises.
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Source : Chart courtesy of iVolatility.com
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In this example, the historical volatility oscillates between 20 and 24 for
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nearly two months (the beginning of June through the end of July) as IV
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rises from 24 to over 30. The stock price is less volatile than option prices
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indicate. If there is no news to be dug up on the stock to lead one to believe
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there is a valid reason for the IV’s trading at such a level, this could be an
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opportunity to sell IV 5 to 10 points higher than the stock volatility. The |