Observing Price Change Behaviour

[mazzatelli1000]

It is common to calculate HV and express it graphically to make assessments on volatility priced in options (in conjunction with looking at IV). This analysis gives an idea of how volatile the stock is. *duh*

But I also want to understand how the price is "distributed".
Example
A highly volatile stock's price behaviour may fit the normal distribution curve so applying normal distrbution assumptions will be appropriate.
On the other hand a stock may have a large number of very large unpredictable price spikes, but overall low volatility.

I have found that expressing price changes of stock in standard deviations useful to get an idea of a stocks price behaviour and see how it is distributed, as knowing that a stock is low or high volatility is not enough.

On the bottom pane, suggests the downward spikes are more common and larger than upward spikes. E.g. It would make one think twice about selling naked puts on this stock 1 standard deviation away.

Discuss?? Any alternative analysis?
Regards

 

[wayneL]

It is common to calculate HV and express it graphically to make assessments on volatility priced in options (in conjunction with looking at IV). This analysis gives an idea of how volatile the stock is. *duh*

But I also want to understand how the price is "distributed".
Example
A highly volatile stock's price behaviour may fit the normal distribution curve so applying normal distrbution assumptions will be appropriate.
On the other hand a stock may have a large number of very large unpredictable price spikes, but overall low volatility.

I have found that expressing price changes of stock in standard deviations useful to get an idea of a stocks price behaviour and see how it is distributed, as knowing that a stock is low or high volatility is not enough.

On the bottom pane, suggests the downward spikes are more common and larger than upward spikes. E.g. It would make one think twice about selling naked puts on this stock 1 standard deviation away.

Discuss?? Any alternative analysis?
Regards

This is the perennial problem of options volatility analysis. The truth is that stock market distributions are not normal or even lognormal and the volatility calculation tells us nothing of the level of kurtosis in a particular spot.

Distributions are more likely to be leptokurtic, i.e. have fat tails. Vol also tells us nothing of the level of trendiness.

A low volatility trend can be just as painful for short gamma positions, but at least gives the trader some time to consider adjustments to the position.

In the end, if you're short gamma, you should draw lines of defence and act on them by adjusting or metamorphosing the position.

Short put's... short vega and gamma with a -delta position inherent = at times.

Spread it IMO.

Is there a better way to analyze? Use IVs in calculation the SDs. The skew will give you more room on the downside in jitterey markets usually.

 

[mazzatelli1000]

Distributions are more likely to be leptokurtic, i.e. have fat tails. Vol also tells us nothing of the level of trendiness.

God, this beast is hard to tame.
We should all be awarded bravery medals just for stepping out into the arena