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Hi, I'm currently reading "Option Volatility and Pricing", by Sheldon
Natenberg, and learning about - surprise surprise, option volatility.
One of the tactics it's currently talking about is finding
overprice/underpriced options based on the volatility.
Using OptionScope, if I input the volatility figure given using the
option volatility indicator on a given share, and then input the data
from actual prices, I'm getting huge differences in volatility, such
as a difference of 15, or 20 etc. Now supposedly thats what I'm
meant to be looking for, but every share/option I've tested this on
is giving substantial differences. - So - checking the metastock help
files for calculating the volatility, it doesn't give information on
the formula it uses. I'm assuming that it's using a lognormal
distribution as described in the book, but it really doesn't say. Is
that where my difference might be? I've gone over and over all the
other figures to input in the OptionScope, and they all seem correct.
Either I'm making errors somewhere, the whole market is mispriced
(according to the theoretic price), or figures I'm using for
volatility must be wrong.
Has anyone come across this? Anyone have ideas?
Thanks
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