Track implied volatility, a handy risk indicator and avoid accidents: Shubham Agarwal

Implied Volatility is the volatility figure that the Option Premium trading in the market indicates when we feed in the rest of the 4 factors. Now, why is this important? Because the implied volatility figure indicates the market assessment of volatility and could be higher or lower than the historical volatility . While that is one dimension that can be statistically evaluated and modelled for inferences, the very behaviour of the Implied Volatility compared to the behaviour of the underlying can help get an insight into an upcoming storm.

Let us understand what anomalies we are looking for, to alert ourselves and what do they indicate?

Quite naturally, building something is time-consuming and slow (less volatile in our context), at the same time breaking things (especially equities) is rather fast. So, quite naturally we would often times see the Implied Volatility rising when the underlying is falling and vice-versa.
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