Simultaneous increase in 'Individual Strike' implied volatility (IV) for both call and put options, despite one selling off and and the other rising?
Simultaneous increase in 'Individual Strike' implied volatility (IV) for both call and put options, despite one selling off and and the other rising?
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srt111 · External communityPost link
External question — Quantitative Finance Stack Exchange
Author: srt111
Original post: https://quant.stackexchange.com/questions/82213
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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Would like to understand why is there a simultaneous increase in Individual Strike implied volatility (IV) for both call and put options, despite puts selling off and calls rising(refer attached options data from interactive brokers)?
It would be simpler to breakup the question into 2 parts for better understanding.
How is Implied volatility calculated for individual strikes?
In the paper published by CBOE a 'single' cumulative value for Iv is calculated based primarily on price of out of the money strikes and strike price,considering the other parameters like time to expiration , rate of interest etc remain same across strikes
(link)
.
So can the summed up individual values be considered as Implied Volatility's for Individual Strikes?
2.Why is there a simultaneous increase in implied volatility (IV) for both call and put options, despite puts selling off and calls rising?
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KaiSqDist · External communityPost link
External answer — Quantitative Finance Stack Exchange
Author: KaiSqDist
Original post: https://quant.stackexchange.com/a/82221
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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1. How is Implied volatility calculated for individual strikes?
BSM implied volatility most likely (solve by iteration with Newton's algorithm for example). This has nothing to do with the VIX calculation.
2. Why is there a simultaneous increase in implied volatility (IV) for both call and put options, despite puts selling off and calls rising?
When an option is about to expire (
$\tau<7$
days), implied volatility tends to spike (due to low
$\tau$
) even though the price drops, which is also why they are commonly excluded in academic studies. You can try this yourself with the BSM IV calculator.
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Quoted from Forex.com.bd-Editorial External question — Quantitative Finance Stack Exchange Author: srt111 Source score (net votes, not local likes): 1 Original post: https://quant.stackexchange.com/questions/82213 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Would like to understand why is there a simultaneous increase in Individual Strike implied volatility (IV) for both call and put options, despite puts selling off and calls rising(refer attached options data from interactive brokers)? It would be simpler to breakup the question into 2 parts for better understanding. How is Implied volatility calculated for individual strikes? In the paper published by CBOE a 'single' cumulative value for Iv is calculated based primarily on price of out of the money strikes and strike price,considering the other parameters like time to expiration , rate of interest etc remain same across strikes (link) . So can the summed up individual values be considered as Implied Volatility's for Individual Strikes? 2.Why is there a simultaneous increase in implied volatility (IV) for both call and put options, despite puts selling off and calls rising?
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