I begin trading (investing in) options on Monday

pauri · Jun 26, 2005

Quote from Trajan:

I'm not sure how familiar you are with statistics, but here it goes. If you take one standard deviation of returns for a stock, that should mean that 68% percent of observed returns should fall within a range of up or down one STD. Taking that out to three STD means that 99% of observations should fall within that range. This relates the IV or as this phenomenon is more commonly called, the skew, in that the number of observations at 3,4,5,...,10 standard deviations is more than one would expect. So that the distribution isn't really normal, but probably lognormal. It has fatter tails and the otms options are priced higher. For equity options, this is often oberserved to the dowside; hence it is the puts which have a higher IV.
More...

--------------------------------------
Thanks Trajan , for the explanation.

pauri · Jun 26, 2005

Quote from union1411:

Here is a pdf of a book on Probability. 510 pages of goodness. Print and enjoy.

http://www.dartmouth.edu/~chance/teaching_aids/books_articles/probability_book/pdf.html
More...

Thanks Union 1411-- Really appreciate that. I am convinced that elite forum members are the most knowledgeable, resourceful and helpful.
Regards

Log in or Sign up

I begin trading (investing in) options on Monday

pauri

pauri