Hi , Any source that explain IV and standard deviation for option in a simple humanly way. Most video on youtube are garbage and repeating each other which already available on similar videos, I'm looking for easy to understand , not coming from statistic 101 and algebra . I'm long term investor and ex active daytrader, but interested to learn options for first time. Thanks for any good suggestions.
response from ChatGPT: If you're looking for clear and practical explanations of implied volatility (IV) and standard deviation for options, these resources might be helpful: Options Playbook by Brian Overby This book explains options concepts in a beginner-friendly and approachable way. It uses simple language and provides real-world examples to help connect IV and standard deviation to option trading strategies. Website: Options Playbook Tastytrade Educational Videos Tastytrade is a fantastic resource for options education with a practical focus. Their videos often explain IV and standard deviation as they relate to probability of profit (POP) and risk management, avoiding unnecessary complexity. Look for their playlists on "Options Basics" or "Volatility". Website: Tastytrade Education Khan Academy – Normal Distribution Basics While not options-specific, this resource explains standard deviation in a way that's easy to grasp. Pair it with an options-focused source to connect it to IV. Website: Khan Academy on Standard Deviation The Option Alpha Podcast Option Alpha has a podcast and blog with episodes that discuss implied volatility and probabilities in simple terms. It focuses on practical trading tips and avoids heavy math. Website: Option Alpha Interactive Brokers' Traders Academy Their free courses on options trading include a section on IV and its role in pricing, with clear explanations and visuals. Website: Interactive Brokers Traders Academy "Volatility Made Simple" Blog This site focuses specifically on volatility concepts. It’s approachable, with practical examples relevant to options traders. Website: Volatility Made Simple If you're trying to tie IV and standard deviation directly to trading decisions, I'd recommend starting with Tastytrade or the Options Playbook—they emphasize practical use cases over theoretical explanations.
Standard deviation is about historical data. It’s a measure, an average, of dispersion around the mean. For normal, and lognormal, distribution (no fat tails) then 68% of the data is contained within +- 1 standard deviation. A stock with a StDev of 5% means it moves more or less by +-5%. Standard deviation is like ATR or ADR. More robust measures are sometimes used under fat tails such as MAD (Median Absolute Deviation). Implied Volatility is different because it’s a forward estimate of dispersion. It’s derived from option price as the difference btw option prices and theoretical prices (based on historical volatility). IV is often higher than the future realized volatility. It’s called the Volatility Risk Premium. There is more going on than volatility alone. It’s an underlying in itself. If you want to compare the two … you have to offset either historical volatility forward or IV backward. All these measures are annualized (often 365 days).
This amateur retail's non professional, non finance and non statistical interpretation: You day trade, so should understand the price chart. Standard deviation tells you how noisy is the price movement around the mean. IV is what you and I and @Sekiyo and a bunch of option traders' best guess of how noisy the price will be during the period of the option expiration. We then price the option around that IV.
https://www.investopedia.com/search?q=implied+volatility https://www.investopedia.com/search?q=standard+deviation
I am a newbie and degenerate option trader xD Since I am an option buyer, I want IV to be less or equal than my own estimate based on historical data. Otherwise I take more risk for less reward, especially if the market overestimated IV. I've read traders use different measures of historical volatility (20, 50, 100 days, ...) Take the smallest / highest value if buying / selling options. We can also use the ATM straddle to see the expected move, If it costs 10 (1,000$) then the market expect the underlying to move +- 10 pts.
What if I tell you, if you only focus on IV, you probably are not looking at options correctly, especially those of us buying options?
Not looking at IV only (and by far) but it’s a requirement of mine. I won’t enter a play if IV is higher than my estimate. But I am all ears
Like day trading, context is important. It is counter intuitive, sometimes buying when IV is high makes more sense.