Generally speaking, implied volatility can be regarded as the market's prediction of the future volatility of the underlying assets. When the market expects the future volatility of the underlying assets to be high, the option price will also rise accordingly, and vice versa. The level of implied volatility can reflect the market's view of future risks.
The calculation of implied volatility usually adopts option pricing model (such as Black-Scholes model). The model calculates a reasonable implied volatility by using the factors such as option price, underlying asset price, exercise price, risk-free interest rate and option expiration date.
In fact, the value of options is determined according to the expected value of a number, which is called the implied volatility of options.
The original formula of implied volatility of options;
C=S N(D 1)-L (E^(-γT))*N(D2)
Where D 1 and D2 are:
d 1=(ln(s/l)+(γ+(σ^2)/2)*t)/(σ*t^( 1/2))
D2=D 1-σ*T^( 1/2)
Among them, S (current stock price), L (option exercise price), D (cash dividend rate), T (option validity period), γ (risk-free interest rate) and σ (implied volatility) are all unknown except σ (implied volatility).
For example, the strike price of a call option is 65,438+000 yuan, the price at maturity exceeds 65,438+000 yuan, the probability of the price falling to 65,438+020 yuan is 65,438+00%, and the probability of falling to 65,438+030 yuan is 8% ... So all known alternative formulas can be calculated.
How to use implied volatility arbitrage?
1. Use arbitrage with good forecasting effect.
By analyzing the implied volatility, investors can predict the future volatility of market indexes (such as CSI 300, CSI 50, CSI 500, etc.). ), lay out and implement the strategy of buying low and selling high in advance, and profit from it.
2. Use arbitrage that can reflect market sentiment.
Implicit fluctuations have a good reflection on market sentiment and timing. It often reveals important emotional changes in the market and provides important market trading opportunities for traders. Investors can formulate trading strategies according to the fluctuation of implied volatility to cope with the fluctuation of market sentiment.
3. Use implied volatility surface arbitrage
This strategy includes establishing a model to analyze the implied volatility surface to determine the implied volatility surface under normal conditions. When the implied volatility deviates significantly from the surface, investors can intervene in the market for arbitrage trading.