How to calculate Implied Volatility by hand?

Hi All,

I got a dumb question (not exactly a math person). I know I can get the in-the-money call and put implied volatility on the IVolatility.com website. My question is how do I calculate it by hand to get the same numbers? Thank you for all your help.

Regards,
William

 

use the black scholes model.... that will give you the IV results

 

they have IV calculators on the net its a financial derivative.

 

You can check out this stuff on Implied Volatility.

 

Thanks Moreagr and gummy.

Hi Peter,

I found your site while researching on Bollinger Band... a great great site. Thank you for the spreadsheet!

Too bad my math brain took the worse turn after high school or college... I plan to reverse the process as my son grows up... hope it's not too late

Regards,
William

 

At the money, you can approximate it as

Implied Vol = P / (0.4 F Sqrt(t) )

where P is price of option, F is forward price (for short dated stuff it's ok to use spot price), t is time to expiry in years.

 

How far off in percentage is this approximation? Thanks.
Sorry can you explain exactly what is F?

 

To solve for price:

0.4*F*vol*sqrt(T)*qty

 

For options on futures, F is the current price of the futures contract, is that correct??? Thanks.

 

It's the forward price, which is spot price times (1 + risk free rate). Now, you should remember that this approximation would be a bit off because of discounting and the fact that this is a first order approximation. In general, it' would be off by less then half of BS vol, though, so it's a reasonable way to check.