Options Jive

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Implied Volatility Dynamics

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Implied volatility (IV) is a measure of how expensive options are and thus how much the market thinks a given stock is expected to move in the future. Though this is often quoted as a single percentage for every underlying market, IV is dynamic across different timeframes.

Today’s conversation is centered around comparing the IV of the S&P 500 using the following timeframes:

  • 10 Days (VXST)
  • 30 Days (VIX)
  • 3 Months (VXV)
  • 6 to 9 Months (VXMT)

With data going back to 2012, Tom and Tony show that long-term IV trades higher than the short-term alternative the majority of the time. However, short-term volatility has traded with a wider high to low range and tends to rise higher than long-term IV amid broad rises in volatility.

Watch the segment above for more statistics and context around the dynamics of implied volatility.

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