2% is a long term average. IV above is calculated for the next 7 days (You can double check calculations with prices I posted. Starting price was 100).
Hold up a sec... For every iteration of your straddle selling exercise, the cost of the straddle is assumed to be based on the "IV" which is calculated based on the known path of the underlying over the next 7 days?
Yes. On the other hand I just realized my calculations must be wrong (the same prices pluged into excel showed vol of 0.31