How to calculate implied volatility of a stock?

Discussion in 'Options' started by trend2009, Apr 27, 2024.

  1. Thinkorswim can displays implied volatility of a stock. Since stock has many options of different strike and expiry date, and each option has its own implied volatility, how does thinkorswim calculate implied volatility of a stock?
     
    thealcapwn likes this.
  2. Last edited: Apr 27, 2024
  3. newwurldmn

    newwurldmn

    use atmf 1m 100.
     
  4. what is atmf 1m 100?
     
  5. taowave

    taowave

    Trick question??

    ...Look at Historical Vol/ Realized..

    Unless you are referring to the rolling 30 day Implied??


     
  6. I thought the IV is "deriving" from the bid/ask value, no?

    Since the other variables (Price, Strike, IR, Days to expiration) are known, all what left to do is to reverse engineer which IN value is matching the option price.

    So you start with possible IV range, let's say, of 10-200, then you "ask" if Option Price higher or lower than 100. If the answer is lower, you "ask" if the option price is 50. And if its higher, then now IV range is between 50 and 100. Rinse and repeat until you match the option price.

    Years ago, I've read somewhere that smart algo can match the option price with max of 6 hits for starting range of 0 to 250.
     
  7. newwurldmn

    newwurldmn

    at the money forward 1 month 100 strike option.
     
  8. C99

    C99

    Stocks do not have an implied volatility, only options do. Stocks only have a realized volatility. Implied is forward looking while realized is backward looking. Given all the other inputs to the BSM model, implied is the variable that solves for the current market price of the option. If implied turns out to be higher than realized over the given time period, you can make money by selling options and delta hedging. And if realized is higher than implied you can make money by buying options and delta hedging. Either way, you need to forecast what the realized vol will be over the holding period relative to what was implied when you bought / sold. When ppl refer to the implied volatility of a stock they are usually actually talking about the implied vol of an ATM (call + put)/2 constant maturity 30 days out.
     
    ajacobson and trend2009 like this.
  9. Thanks
     
    #10     Apr 27, 2024