Learn the basics of implied volatility?

Learn the basics of implied volatility?

1. There are different volatility index in the world E.g. CBOE volatility index measures the average implied volatility of various options of S & P 500 - measures the NASDAQ 100 future volatility-India vix Represent the volatility of the index future in India
2. Implied volatility represents the volatility in the underlying index future.
3.  Implied Volatility is the total up or down move expected in the index futures derived from stock options price.
4.  If options traders pay more to buy the options and option sellers demand more for selling an option, option price increases.
5. In this case the implied volatility increases we can expect the large movement in stock future price.
6. If option buyers are not paying more and option sellers are ready to sell at lower cost option price decrease 
7. In this case, the implied volatility decreases and we can except small movement in the stock future price
8. Implied volatility represents standard deviation one year change in stock price 
9. For Example stock price = +_(stock price x implied volatility)
10. If the stock price is 97.5 and its implied volatility is 44% we can expect the one-year trading range between 54.6-140.
11. If the stock price is 42.25 and implied volatility is 18% we can except the one-year trading range between 34.65-49.85
12. Stocks with high implied volatility have large trading range
13. Stocks with low implied volatility have a small trading range
14. To calculate the trading range for 30 days using implied volatility we use this formula 
15. Formula to calculate the trading range for x no of days
16.  = stock price x implied volatility x  Square root of (no of days/365)
17. For example, if the stock price is 250 and implied volatility is 15% trading range for 30 days is equal to plus minus 10.75
18. Read research papers about implied volatility here
19. Download implied volatility excel sheet to calculate the option expiry probability here

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