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Implied Volatility Explained – What the Market Expects (Yiddish)

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Chaim Ekstein | Git Gelt Podcast avatar
Chaim Ekstein | Git Gelt Podcast

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In today's lesson, guys, I explain on what's implied volatility. Other IV, [music] implied volatility. What is this? This is arbitrage. And for what can this market either break or make it, or break it down [music] the trades. And remember the manner that option trading involves risk. But the 1000% was the test. And if those [music] any shallows, please let us know in the comments and cancel this address in the comments of the lesson. And I don't know what IV means. What does IV mean? Basically, mind what is the prediction from the market of what the guy is saying with a stock by the next stock will start. Okay, this is how the guy stock moving going forward. And this is what is going to happen with the IV. Basically, based on option pricing of option pricing, we can see the excitement and the fear in the market. But in the options market, all the options are speculated and all the options are protected positions which I have. So all the options market can be seen what the IV is. So what is the difference with the issue and the change? This is historical volatility, HV, historical volatility. IV is implied what we expect [music] as the guy is saying. This is forward looking. We can see from photos what expect the guy is saying. That was the day that we said the word. All of this is too high IV. This means we expect a huge move either up or down. This market option is more expensive and all the guys buying the option guys are saying no. And on the other side, all the guys selling the option guys are >> [music] >> saying yes. What is more expensive the option? So if you have a low IV, a smaller implied volatility, is options [music] cheaper. And when the guys are selling and on the other side, the guys are buying, what is the difference? This is going to affect so this affects what they collect or what they pay. So where did we get the IV? Copy it off the IV camp. We have a pricing models of options. The most known pricing models [music] of options are from the Black-Scholes model. And in details from them irrelevant, but you know what I mean. As the model calculates what the IV percentile is calculated, and say the worst engineer load the option price of the options. This is how the price of the options load them is calculated the IV. But you don't have to calculate that because every normal option chain from every normal brokerage shows what the IV the IV for this specific stock is or for this specific expiration date. It's not a fact. This is what they believe what they are doing in the market based off this activity what the guy is doing. What can affect the IV? Earnings. Okay, the most likely company that announces their earnings. Guess [music] what can change the price of the stock. Price of the stock. People become more excited or more concerned. So this affects the IV. When the stock is very popular and very exciting, everyone wants to know >> [music] >> what the IV is going to be affected by the faster coming to the earnings announcement. [music] What is the website saying what to expect? Let me assume we expect a certain news of the market align. The Fed makes an announcement or other things that can affect the IV or the market fear. Not more than a coma. All of these things can affect the IV. [music] And when the event gets a huge IV, it's like a balloon being blown up >> [music] >> and glass. When the announcement is out, it's like I'm going to pin the balloon. So you get the fall of the IV and the whole lift and the whole excitement is out of it. And this is what we call IV crush. So the stock doesn't make a huge move with earnings, but the option price will be set. The question is why did I buy the call option that stock is going to go down? Why did I not make any money on my option? Because the IV has been crushed. So it dropped the IV. So because of that, the option buyers will lose a lot of money with the IV crush. But on the other side, the option sellers will benefit from that because they sold the option for a very high price and they can buy it back for a cheaper price. So this helps us to understand what is IV and what is [music] high or the low IV compared to the history. This is what we call IV percentile and the IV rank. What is the percent of the IV compared to the historical volatility? For example, if you have the IV rank of 80, this means that IV is 80% higher than the previous value. Before that, it was 80% lower and now it has become the IV with 80% higher. [music] And when you want to sell the premium, this is the time to have a higher IV. And when you want to buy a premium, this is the time to have a lower IV. You can see the option chain for the SPY [music] and you can see all of the SPY option chain and all the expiration dates that you can see there. And you can see the IV based on the expiration date. 19% IV. And you can see that the IV fluctuates and all the expiration dates have different [music] numbers for the IV. And when there is an event, for example, earnings for a stock, the IV has gone up a lot. And you can see the option premium will be very high. Look at that. So I hope this lesson has helped you to understand what is implied volatility. And if you have any questions, any comments, please let us know in the comments section. And make sure that you like and subscribe [music] to the channel so you can get more ideas in the options market so you can finally make sense of this complicated topic which we call options. And so we can help you become a better options trader. And let me know if you have any other lessons that you would appreciate us to talk about in a future lesson. >> [music] >> And you can get all the lessons by email by subscribing to nextleveltrading.com/blog, b l o g.