To illustrate my new understandings;
During the past 50 days, AGE.to has traded in a range of prices that might have been expected if the Historic Volatility had been 22%. During that same 50 days, the historic volatility, as calculated from daily percentage price changes, was actually ` 50%.
As I write, the Price of AGE.to is $20.16, and the Jun 22 call is bid $1.80. This reflects an IMPLIED volatility of 50.3%, which is very close to HV. The delta of the call is .46, so long 100 shares short 2 calls, would give you close to a perfect hedge.
The 2 standard deviation profit range extends from $15.00 to $27.12. Check this range on the chart, comparing it with the range in which the stock has traded during the past 50 days (BB's).
stockcharts.com
(Above $27.12 one would be exposed on the upside to a 100 share short position. Is this within one's risk tolerance).
Actual dollar and annualised percentage profit at expiry (as calculated by my dubious home-made basic program are);
$15.. break even (the value of the 100 shares equals the amount paid for the position).
$17... a profit of $123, which is an annualised return of 24% on the amount paid for the position.
$23... this closing price is $1 above the strike so you will be short (replace position by selling two puts). Nevertheless profit here is $476, an annualised return of 95%
$27... getting close to the upside break-even, nevertheless profit is still $76 an annualised return of 15%.
Our discussion of volatilities has been of practical value to me. I thank you,Dom, Dan and OX. |
