The Tempest and Volatility Analysis
The second quiz question tested your ability to perform IV-HV analysis to ascertain whether options seemed cheap or expensive.
83% of you nailed it by answering that options seem overpriced.
In comparing implied vs. historical volatility we're trying to get a sense as to whether options (implied vol) are over or underpricing the amount of volatility we're expecting the underlying to realize throughout the duration of the trade. Rather than randomly guessing how much volatility a stock is expected to realize, most traders use historical volatility as a gauge. What better way to forecast future volatility than by looking at what's happened in the past?
As Shakespeare stated in The Tempest:
Whereof what's past is prologue, what to come,
In yours and my discharge.
If indeed past is prologue, then historical vol...
