10 Trades We Are Thankful For
tastytrade logo
The Skinny On Options ModelingWhy Multiply Vol by the Square Root of Time? | Jun 17, 2015
Up Next
    The Skinny On Options ModelingWhy Multiply Vol by the Square Root of Time?Jun 17, 2015

    Today, on this segment of "The Skinny On Options Modeling", Tom Sosnoff, Tony Battista and Tom Preston delve into the Black-Scholes options pricing model to explain why we multiply volatility by the square root of time. Despite the calculations shown on some of the slides one does not need to be a math genius to learn a lot from this segment.

    Tom Preston revealed that there are two goals to this segment. The first is to explain the mechanics of why we take the square root when dealing with volatility. The second is to learn whether it matters if we use calendar days or trading days when doing a one day trade. Ultimately, this segment will make things simpler for you.

    A theoretical example of an asset's volatility is examined. It is explained why using volatility by itself won't work and the solution is explained. Earlier, on today's episode of "Market Measures", the point was made that there is a large difference between a binary event with one day to go versus one with more than a month. Here we learn why that is true and can see it mathematically.

    Tom Preston explains how variance and time are converted by the square root. Tony reminds everyone of a ditty that Tom Preston introduced a year ago to explain some of these concepts.

    Watch this segment of "The Skinny on Options Modeling" with Tom Sosnoff, Tony Battista and Tom Preston to better understand some important concepts and the logic of selling premium.

    More like this

    tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on 

    tastytrade is a trademark/servicemark owned by tastytrade.

    tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).

    tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.

    Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

    © copyright 2013 – 2022 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.