In constructing the implied volatility
indices for each stock we follow the same approach as the construction of the VIX.
Following market practice, implied volatility
here is defined by inverting the BlackScholes formula from an option price.
The box shows that as long as the underlying asset has a positive risk premium, the implied volatility
from the options could be higher than a historical measure of volatility.
Other factors may also affect both the exchange rate and volatility, entailing that the observed relationship between the exchange rate and implied volatility
Table 2 The Delta-Neutral Portfolio on the Next Day When Implied Volatility
The Morningstar Volatility Index (MVI) is unique in that it is an aggregate of the implied volatility
of individual options within an index, rather than the volatility of the index itself.
50 put has an implied volatility
of 75 percent compared to the July 17.
NYSE: KR) has seen a spike in its implied volatility
as its turn in the earnings confessional draws nearer.
This number tells us where current implied volatility
levels stand in relation to the past 90 days of trading.
Another sign of the high demand for puts over calls lies in the implied volatility
of the equity's out-of-the-money options.
More specifically, the strategist is targeting a sluggish or range-bound stock with an historical volatility level significantly lower than the implied volatility
levels of its in-the-money options.
The Euro/Dollar also has the lowest implied volatility