A review of IV (Implied Volatility) and its usefulness

Discussion in 'Options' started by OddTrader, Aug 3, 2009.

  1. You're thinking of it wrong. Let's imagine that there's a tradeable commodity out there and let's call it "optionality". Then think of IV, whichever way it's calculated, as a simple measure of the value mkt assigns to optionality, much like yield is a measure of value the mkt assigns to bonds. Now just like with the other financial products (e.g. futures), optionality is something you buy today but for settlement some time from today. If, when time comes, the actual value of optionality turns out lower than what you paid for it (delivered vol < implied vol), you lose money. If it's higher, you make money.
    I am not sure what you're trying to say here. Of course, IV can be computed for any option price, but it's NOT directly based on expectation of volatility. IV is based on the price of the option; price of the option is based on supply/demand for optionality; supply/demand for optionality MAY be based on the expectation of how volatile the asset is going to be in the future, but that doesn't have to be the only input. Again, this is just like any other asset, where supply/demand for it may be based on its expected value.

    All your other quotes, OT, just don't do it for me, I'm afraid. They all talk about special cases, without addressing the fundamentals.
     
    #51     Aug 6, 2009
  2. I would agree with you that we still have some disagreements, even you have now changed your statement about demand and supply of the underlying, rather than the volatility! :p

    I'm done with this thread! Bye! :)
     
    #52     Aug 6, 2009
  3. I have never changed my statements. I have always been saying the same things, but was just trying to approach it from different angles to make my point as clear as can be.

    At any rate, good luck with your optional endeavors!
     
    #53     Aug 6, 2009
  4. This is wrong on many levels (ref atticus).

    http://www.elitetrader.com/vb/showthread.php?s=&postid=2532911#post2532911

    +1

    Below is one of the many underlying aspects:
    "If (commodity) stockpiles are large, demand can increase and drive uo prices with no visible volatility change. ...

    When supplies are considered adequate, volatility tends to subside, even when demand increase. ...

    This phenomenon is a good reminder that it is uncertainty about supply more than supply itself that boosts volatility", per Schap.
     
    #54     Aug 7, 2009
  5. Do you think this kind of statements would provide/ enhance any rational/ logical way for better analyses/ arguments? I am jusy wondering! :)

    Talk again later with another thread, Ciao!
     
    #55     Aug 8, 2009