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Strategies & Market Trends : Canadian Options
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To: Li-Fan Chen who wrote (429)5/8/1997 6:11:00 AM
From: Porter Davis   of 1599
 
Li-Fan Chen: Try this site for Cdn options quotes...

www2.canada-stockwatch.com

Its not free, but they have a 30-day trial membership. If anyone knows any other sources, I'm sure everyone here would be interested.

On implied volatility vs. historical volatility:

C=U*(e(-rt))*N(h) - E*(e(-rt))*N(h-v/t) (N.B.: Don't try this at home)

Four of the five components of the Black-Scholes pricing model are constants, or givens; the only variable is volatility. Now, in theory, one would plug in the underlying's historical volatility, which is a statistical measurement of price changes over a selected series of intervals using a front-weighted average. Still with me? Anyway, this is only a starting point. Implied volatility is the extrapolated figure based on what price option buyers and sellers are in stasis. We always keep an eye on the correlation between historical/implied vol. As Dave mentioned, sellers now seem to be selling options *cheap* in terms of what the underlying stocks are doing in terms of movement.

The rule of thumb is this: if we're buying too much premium, the vol is too high; if we're selling too much, the vol is too low. Just ask the Bre-X boys about implied volatility. It hit 650% last week.

Hope this helps.

Happy trading.

Porter
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