Calculating Implied V and Historial V

[Seneca60BC]

Hi

Can someone tell me whether what I am doing is correct.

I have taken the AWEEV Option with a Strike of $3.00. This expires on 26 March 2009.

I am assumed an interest rate of 7%.

The last price for this option is 19.5 cents and the underlying stock was last traded at $2.72.

I have calculated an IM of 38.7%

Now, i have also calculated a historical V of approx 3.1 by using the close prices of the previous 10 days.

Is this method correct?

What errors can you see.

It just doesn't seem right that the IV is so much larger than the Historical V.
Thanks!

 

[cutz]

Hi,

I previously came across this link which is posted on one of the threads on this forum, you may find useful for calculating HV,

mhtml:http://www.users.bigpond.com/equus2/MyHistoricalVolatility.mht

cutz.

 

[cutz]

I just had a fiddle on excel and i came up with the following,

HV of 59.9 at 20days and 59.6 at 10days.

cutz.

 

[Seneca60BC]

ok thanks

I worked out using that page you outlined the historical V of 23.53 for 50 days using the closing prices of AWE

 

[GreatPig]

I calculate an IV of 33.5% using Black-Scholes.

GP

 

[Seneca60BC]

LOL - actually i now get 55 like what cutz says - I was using Base 10 Log and not Natural Log.

 

[wayneL]

If you have amibroker or metastock, you can plot it by using the following formula:

(StDev(log(C/Ref(C,-1)),20)*sqrt(252))*100 (20 day hv, change length as desired)

 

[Seneca60BC]

If you have amibroker or metastock, you can plot it by using the following formula:

(StDev(log(C/Ref(C,-1)),20)*sqrt(252))*100 (20 day hv, change length as desired)

HI Wayne

Thanks for that - i will be quite interesting to see what you come back with if you have the time to do the calculation off course. I do not have amibroker or metastock. If you want to try, here are the last 20 days closing price for AWE:

2.72
2.7
2.78
3.02
3.18
3.03
3.1
3.19
3.41
3.49
3.5
3.43
3.33
3.34
3.4
3.3
3.11
3.21
3.12
3.26

Cheers!

 

[wayneL]

I get 60.17, that includes today's data as well.

It's the red line below. Ignore other lines, they are for my own analysis.

 

[Seneca60BC]

yes thats quite interesting - is that over 20 days ? - my calculation was over 50 - but shouldnt make much difference.

 

[wayneL]

yes thats quite interesting - is that over 20 days ? - my calculation was over 50 - but shouldnt make much difference.

Yes that's 20 days. The white line is 50 days at 54.65%

Differing analysis lengths can sometimes return quite contrasting results, which is why I like plot differing lengths. (yellow line is 6 days fwiw)

 

[Seneca60BC]

ok thanks Wayne - that makes sense now.

Cheers!

 

[cutz]

Hi,

When you consider the skew of implied volatility across strikes what reference do most charting programs use to chart IV of a stock?

cutz

 

[wayneL]

Hi,

When you consider the skew of implied volatility across strikes what reference do most charting programs use to chart IV of a stock?

cutz

Depends who is collating the data. Usually an algorithm of near month, near to money strikes. It's basically an average.

This can cause variations in IV that don't actually exist, as different strikes come into the equation.

Use as a guide only.

 

[cutz]

thanks again Wayne