tag:blogger.com,1999:blog-2092963398381163069.post3018200759203515817..comments2024-03-22T21:46:40.065+08:00Comments on Options Trading Beginner: Understanding Implied Volatility (IV)OPTIONS TRADING BEGINNERhttp://www.blogger.com/profile/12902119875170352315noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2092963398381163069.post-27830737534496483582008-06-10T18:33:00.000+08:002008-06-10T18:33:00.000+08:00Thanks :)That helped!!Thanks :)<BR/><BR/>That helped!!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2092963398381163069.post-76943953291949502922008-06-09T19:06:00.000+08:002008-06-09T19:06:00.000+08:00Hi Niladri,It's ok. Your question actually give me...Hi Niladri,<BR/><BR/>It's ok. Your question actually give me "inspiration" for another topic to be discussed in the near future. :-)<BR/><BR/>The following formula is not misleading: <BR/>Option Premium = Intrinsic Value + Time Value.<BR/><BR/>Because actually Time Value here has factored in the probability of finishing ITM.<BR/><BR/>Pls see the following post:<BR/><A HREF="http://optionstradingbeginner.blogspot.com/2007/07/more-understanding-about-options-time.html" REL="nofollow">More Understanding about Options Time Value</A><BR/><BR/>As mentioned above, I'll clarify this in the near future, ok? :)<BR/><BR/>PS:<BR/>Thanks for the kind words.<BR/>I'm very happy that many people in fact can benefit from this simple blog. <BR/>Thanks also for your support to my blog site. :)<BR/><BR/>Regards,<BR/>OTBOPTIONS TRADING BEGINNERhttps://www.blogger.com/profile/12902119875170352315noreply@blogger.comtag:blogger.com,1999:blog-2092963398381163069.post-31775923782974578552008-06-08T20:42:00.000+08:002008-06-08T20:42:00.000+08:00Hi OTB,I completely appreciate and understand your...Hi OTB,<BR/><BR/>I completely appreciate and understand your point. Despite that, I would make another attempt to refute it:<BR/><BR/>As Intrinsic Value of both the OTM Puts = 0, it would then be misleading to say that: <BR/>Option Premium = Intrinsic Value + Time Value.<BR/><BR/>Instead, it should be:<BR/>Option Premium = Probability of Spot being in-the-money + Time Value??<BR/><BR/>Please excuse my mechanical approach on this topic :-)<BR/><BR/><BR/>NB: By far yours is the best blog/ site on basic options notes in the web that I fave chanced upon.<BR/><BR/>- NiladriAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2092963398381163069.post-14132723567697890622008-06-08T19:01:00.000+08:002008-06-08T19:01:00.000+08:00Hi Niladri,Yes, deeper OTM Puts normally have high...Hi Niladri,<BR/><BR/>Yes, deeper OTM Puts normally have higher IV than less deeper OTM Puts, and hence deeper OTM Puts are considered as "more expensive".<BR/><BR/>But that does not mean that the premium of deeper OTM Puts will be higher in terms of dollar.<BR/><BR/>This is because an option's premium is affected by 6 factors, not only IV.<BR/>Other important factors are strike price & current stock price.<BR/><BR/>Although deeper OTM Puts is higher in IV (hence it's considered "more expensive"), their option premium will be lower in terms of dollar than less deeper OTM Put options.<BR/>This because deeper OTM Puts' strike prices will be much farther from the current stock price, as compared to less deeper OTM Puts.<BR/><BR/>So, when you calculate the option's price using options calculator, deeper OTM Puts' premium would be lower in dollar than less deeper OTM Put options.<BR/><BR/>Hope that can clarify. :)<BR/>But I will also discuss this further in the next post. <BR/><BR/>Thanks & Regards,<BR/>OTBOPTIONS TRADING BEGINNERhttps://www.blogger.com/profile/12902119875170352315noreply@blogger.comtag:blogger.com,1999:blog-2092963398381163069.post-9534648922167125272008-06-07T22:06:00.000+08:002008-06-07T22:06:00.000+08:00Hi...got a question:Lets say there is a OTM-put an...Hi...got a question:<BR/><BR/>Lets say there is a OTM-put and a deep-OTM-put.<BR/><BR/>Now, as option premium= Intrinsic Value + Time Value<BR/><BR/>OTM-Put premium= 0 + a<BR/><BR/>Deep-OTM-Put premium= 0 + b<BR/><BR/> <BR/><BR/>As we know that because of vol-skew, deeper the OTM Put, more its implied volatility, thus more time value. Therefore, b>a.<BR/><BR/>That means, Deepet OTM Put premium > Deep OTM Put.<BR/><BR/>BUT, if we calculate the premiums through Black-Scholes Model, we get the opposite result.<BR/><BR/>Could you please explain this to me??Anonymousnoreply@blogger.com