We usefor a variety of things when looking at potential options strategies. Our primary use of whether or not option prices on a certain market are currently expensive of cheap relative to their historical prices. We do this thorough our IV Rank metric.
Today, the guys use IV a different way: to calculate the expected move of a stock in the future. After noting the formula and importance of this expected move number, Tom and Tony take a look at a study that compared expected moves to actual moves from the past in fifteen different markets.The Study
- 2010 to present
- Compared 45-day ( ) implied moves in equity indices, commodities, and single stocks
We found that all of the markets that we looked at actually witnessed overstated expected moves as a function of their options prices. Equity indices saw the largest overstatement, and hence our use of the S&P 500 as a go-to stock to sell premium in. Check out the segment above for more details.