Day Trading Options: Learn How To Create A Six-Figure Income With Short-Term Trading Opportunities. Includes Money Management and Trading Psychology by Benjamin Collins

Author:Benjamin Collins [Collins, Benjamin]
Language: eng
Format: azw3, epub
Published: 2020-09-18T16:00:00+00:00

2003

47.84

21.28

2004

26.03

19.25

2005

25.55

16.04

2006

23.53

17.34

2007

31.28

16.67

2008

61.58

22.43

2009

40.76

22.19

2010

33.32

17.96

2011

41.66

17.09

2012

25.12

17.68

22.01.2013

23.18

20.01.2013

17.26

Now we have a benchmark that we can use to determine whether an option is expensive or cheap.

In the current year, we always orientate ourselves to the Implied Volatility high / low level of the previous year!

So how do we know if an option is expensive or cheap?

If we compare the implied volatility (23.18%) against the low value 2018 (21.40%) on January 22, 2013, this is higher, and therefore an option that you want to buy is relatively expensive.

However, the implied volatility of 17.26% on January 20, 2013, is very low compared to the 2012 IV low (17.68%). So, an option that you want to buy is rather cheap.

In 2008, the IV high was 61.58%, and the low was 22.43%. This IV high in 2008 was more than twice the IV high in 2007 (31.28%). You could see that from the high option prices.

In the following, I will try to show how much the implied volatility can influence the option prices.

Let us look at four examples:

Note: The purpose of the following examples is to demonstrate how implied volatility can affect option prices and "whether" option premiums are expensive or cheap.

In order to be able to show the complexity of the implied volatility, one has to find several identical stock prices over a longer period from a public limited company and know the associated data of the implied volatility. If you then also have historical original option prices available, you can get a good idea of ​​ how the implied volatility determines the theoretical option price.

I can hopefully convey this to you with the help of daily bar charts and the corresponding tables.

Brief chart explanation:

The daily bar chart is divided into two areas:

Upper area: day bar with date indication of when the share was able to record approximately the same share price.

Lower area: implied volatility graph, daily fluctuations (blue line), and 60-day moving average (red line). The vertical yellow bars are intended to emphasize what percentage the implied volatility had when the share price once again reached the same price level.

Short table explanation:

Contract: Options contract we are analyzing.

Date: Time when approximately constant stock prices were recorded (observation period).

IBM share prices: approximately the same share prices, in USD. Base price: Strike price of the option.

RLZ days: remaining term that remains until the exercise date.

Days past: Days that have passed since the observation period.

Options Premium (OP): Where is the US option premium (original ask premium) for the same option contract in the observation period (date).

Implied volatility: "IV" in%

Option premium (TOP): Theoretical option premium in USD. This is the option price, assuming that the implied volatility and the share price remain the same as when you bought the option. The option premium is decreasing more and more as the fair value takes its toll (in the form of a loss in fair value). This theoretical option price should be understood as a guideline and, as the word suggests, is only "theoretical."

OP vs. TOP difference: The difference between the option premium and the theoretical option premium in USD.

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