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That's what implied volatility essentially is...the price and supply/demand
for the option right now. But it is not calculated from historical
volatility. It is the solving of the Black Sholes formula when you know the
price of the option.
>Last time I checked, one of the major factors in the Black-Scholes formula
>is
>the historical volatility of the underlying. So are we getting any closer
>to a
>leading indicator? The price and the supply/demand status at this present
>moment is as close as you can get.
>
>
>-----Original Message-----
>From: Richard <rjb@xxxxxxxxxxxxxxxxxxx>
>To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
>Date: Sunday, August 02, 1998 12:21 PM
>Subject: Re: Day trading futures options.
>
>
>>>I seems to me that Implied Volatility lags Historical
>>>Volatility in most time frames. I have no proof but it seems that way to
>>>me.
>>
>>That is not entirely true. I don't want to get into this "leading/lagging"
>>thing all over again but historical volatility by definition lags, because
>>you must use history in order to calculate it. What's more, the time frame
>>you use to calculate historical volatility makes a big difference in the
>>results you get. Are you using 10 days, 100 days, 10 years, 100 years?
>>
>>But implied volatility is a figure that exists in option prices RIGHT NOW.
>>No historical volatility data is used to calculate it. It is the end result
>>of solving the theoretical option pricing model for "V" (volatility) rather
>>than "P" (price).
>>
>>If you're using the Black Sholes Model, for every given option at any one
>>given time, there IS ONLY ONE figure for implied volatility. There is no
>>argument or discussion about it, whereby 100 different traders will have
>>100 different opinions on historical volatility given the various time
>>frames they may use.
>>
>>
>>
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