Is implied volatility of a stock is the iv on at the money strike prices

rvsw

New Member
#1
Hello

When someone mentions the implied volatility of a stock, is it the implied volatility of the stock on at the money strike prices? And if it is, is it for the call or put
I'm asking this because the implied volatility is different at different strike prices. So it is not clear which strike price is taken into account when we are just mentioning the implied volatility of a stock.

I am assuming that volatility of the underlying stock is completely different and is called as its historical volatility which is not its implied volatility.

Can someone please clarify?

Thank you for your inputs
 
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mohan.sic

Well-Known Member
#2
If someone mentions iv of a stock, it is wrong way of mentioning. Underlying stocks will have volt or historical volt.
I agree sometime you see the wording like high stock iv's. It simply means that overall option iv's in that stock are high.
Only options will have iv's. Both ce/pe at every strike will have a different iv.
 
#4
If someone mentions iv of a stock, it is wrong way of mentioning. Underlying stocks will have volt or historical volt.
I agree sometime you see the wording like high stock iv's. It simply means that overall option iv's in that stock are high.
Only options will have iv's. Both ce/pe at every strike will have a different iv.
Mohan ji thanks for explaining this concept. I understand that the stock cannot have an IV value, as it is meant for option contracts only.

But if we have to compare the IV of all the counters from a particular sector like realty sector, for observing which counter has high IV and which has low IV comparatively, then how would we do that ? We cannot keep on looking at the individual IV of every single call and put of all these realty sector counters for doing such analysis, no ?

What to do in such a case, could someone please explain ?

Thanks and regards
 
#5
IV broadly follows the historical volatility of the underlying. A high volatile stock will always have high IVs. So, if you really want to compare IV of stocks of same sector then look at their historical volatility to get a general sense. But otherwise comparing IVs of two stocks is not ideal.
 

cinderblock

Well-Known Member
#6
Historical and Implied volatility both measure the same thing. The volatility of the underlying.

HV is a direct measure and IV is an indirect measure because it is the volatility as implied by option prices. Ideally, they should be the same (except that IV is a short term measure).

You can measure an unknown "x" directly using first principles OR you can measure it because it's part of another equation and you know the result of the equation, so you can solve for "x".
 
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mohan.sic

Well-Known Member
#7
Mohan ji thanks for explaining this concept. I understand that the stock cannot have an IV value, as it is meant for option contracts only.

But if we have to compare the IV of all the counters from a particular sector like realty sector, for observing which counter has high IV and which has low IV comparatively, then how would we do that ? We cannot keep on looking at the individual IV of every single call and put of all these realty sector counters for doing such analysis, no ?

What to do in such a case, could someone please explain ?

Thanks and regards

You want to know Iv's of Sector ? or Iv's of Individual stocks in that sector ?

when you say,which counter has high IV and which has low IV comparatively. What does Counter refer to- Stock or sector

What comparitive analysis you wan to do with this iv numbers ?

Pls note: My question is technically incorrect. But asking this way just to understand what you need.
 

mohan.sic

Well-Known Member
#8
Historical and Implied volatility both measure the same thing. The volatility of the underlying.

HV is a direct measure and IV is an indirect measure because it is the volatility as implied by option prices. Ideally, they should be the same (except that IV is a short term measure).

You can measure an unknown "x" directly using first principles OR you can measure it because it's part of another equation and you know the result of the equation, so you can solve for "x".
They are not the same.
HV is actual volt that is recorded - Derived from price movement of the underlying stock.
IV is derived from option prices. Theoretically, it implies the expected volt in the instrument. But practically that theory is rubbish.
In real time trading IV's are based mostly on Liquidity of the instrument, enthusiasm of Option traders.
 
#9
You want to know Iv's of Sector ? or Iv's of Individual stocks in that sector ?

when you say,which counter has high IV and which has low IV comparatively. What does Counter refer to- Stock or sector

What comparitive analysis you wan to do with this iv numbers ?

Pls note: My question is technically incorrect. But asking this way just to understand what you need.
Mohan ji, I just wanted to say, that if we have to quote some IV value for DLF and UNITECH etc. then how could we possible state that IV Value, because neither the stock, nor the futures contract have any IV Value, and only the Individual Call and Put Contracts of these realty sector stocks have got their separate IV values.

So is there any accepted and sensible method, by which one could assign a single IV Value to DLF and Unitech and all such stocks of a given sector ?
I have seen online on a few sites like Myfno etc. that they assign single IV Value to DLF and all other counters. I am trying to figure out, how do they do it, and if that is the correct way to do it.

To make it even simpler, suppose I ask you this directly, that ok sir, tell me the IV of DLF at todays market close time. Then what would be your answer for this, and how exactly would you calculate this IV of DLF, as a whole ?

I hope I have clarified my question. Once again, thank you so much for sharing your insights.

Best Regards
 

cinderblock

Well-Known Member
#10
They are not the same.
HV is actual volt that is recorded - Derived from price movement of the underlying stock.
IV is derived from option prices. Theoretically, it implies the expected volt in the instrument. But practically that theory is rubbish.
In real time trading IV's are based mostly on Liquidity of the instrument, enthusiasm of Option traders.
The IV derived from option price is the volatility of underlying itself.

Read it up on the nse website or on the CBOE how VIX is calculated. Of course you are free to believe its rubbish.

https://www.google.co.in/url?sa=t&s...FjAAegQIABAB&usg=AOvVaw15ecN4pxpjTRM9WnV4dyVS
 

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