tasty Extras

Market Stats: IV Overstatement in 2020

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

The implied volatility of an underlying overstates its historic volatility the vast majority of the time, as insurance will typically sell at inflated prices in periods of financial uncertainty.

This trend, however, did not hold during the market recovery of the COVID Selloff.

Today Tom and Tony discuss how, unlike most market environments (including following past major selloffs) the VIX contraction period following the 2020 selloff saw options as being undervalued in retrospect.

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