Volatility on Options

[ShareIt]

Hi All,

Over the past few days I have been looking into volatility and how it is factored into the price of an option. My understanding is that the higher the volatility, the higher the price of the option... and you don't want to buy an option that has a higher than average volatility because chances are the volatility will drop to the average, meaning your option will lose value regardless of price move.... is that correct?

Also, an already high volatility option is not leaving you with much room for a further increase in volatility, meaning that your option's volatility will most like drop rather than go up?

Are there any sites, links or software that provide figures on the implied volatility for Options as well as the historical volatility?

Thanks for all your answers and feedback up until now, it has really helped! Which is why I have a volatility scenario....

 

[sails]

Hi All,

Over the past few days I have been looking into volatility and how it is factored into the price of an option. My understanding is that the higher the volatility, the higher the price of the option... and you don't want to buy an option that has a higher than average volatility because chances are the volatility will drop to the average, meaning your option will lose value regardless of price move.... is that correct?

Also, an already high volatility option is not leaving you with much room for a further increase in volatility, meaning that your option's volatility will most like drop rather than go up?

Yes, you've got the general idea!

Are there any sites, links or software that provide figures on the implied volatility for Options as well as the historical volatility?

This might be what you are looking for: http://www.impliedvolatility.com.au/index.htm

Cheers

 

[wayneL]

and you don't want to buy an option that has a higher than average volatility because chances are the volatility will drop to the average, meaning your option will lose value regardless of price move.... is that correct?

Also, an already high volatility option is not leaving you with much room for a further increase in volatility, meaning that your option's volatility will most like drop rather than go up?

As sails said, that's the general idea. But bear in mind that you are making a volatility projection/prediction when you thing that way. There are times when it makes sense to cough up for the high volatility, if you believe vols will continue to be high or even increase further.

Volatility doesn't always cycle from low to high to low in a nice sine like wave. It can go high and stay high.

The question to ask yourself is: "What do I think volatility will do next?" (crystal ball useful in such instances )

Just something to consider.

 

[ShareIt]

Yes, you've got the general idea!


This might be what you are looking for: http://www.impliedvolatility.com.au/index.htm

Cheers

Thanks for the feedback

and thanks for the link... just what I need!

 

[sails]

As sails said, that's the general idea. But bear in mind that you are making a volatility projection/prediction when you thing that way. There are times when it makes sense to cough up for the high volatility, if you believe vols will continue to be high or even increase further.

Volatility doesn't always cycle from low to high to low in a nice sine like wave. It can go high and stay high.

The question to ask yourself is: "What do I think volatility will do next?" (crystal ball useful in such instances )

Just something to consider.

LOL, you've expanded on my "general" comment well. Let me know if you find a good crystal ball!