wonder if you're not misinterpreting or misapplying IV.
That could be a good possibility. But, I got the method of determining the possible range a stock could move using IV from Bernie Schaeffer's book "The Option Advisor", pages 68, 69. Low volatility stocks have low price ranges. High volatility stocks have large ranges. 87% is high. In fact using my source, (Power Analyzer), NTAP has a 90 day HV of over 100% and a one day IV of 93% which would make the ranges wider.
The only mix-up, I think would be is, does the IV number pertain to an annual rate or to the life of that particular option. Since an option has a limited life, I believe the assigned IV number is for the life of that option. It wouldn't make sense being an annual rate due to the option's limited life.
Regarding your 32% figure, the stock price doesn't have move at all. But, the writers of that option gave it the high volatility because they felt due to the characteristics of NTAP, it's possible, (operative word), it could end anywhere within that range.
If I'm misinterpreting any of this stuff set me straight cause I'm a newbie at this. Plus, this thread is for dummies
so I'm amply qualified for this.
Regards,
Dominick |
