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Non-Tech : Invest / LTD
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To: waverider who wrote (4208)10/14/1998 2:00:00 PM
From: SJS  Read Replies (2) of 14427
 
Volatility is either actual or implied. Actual is derived from (I think) the standard deviation of the actual stock closes over time. Implied volatility can be calculated from the current call or put. I don't know the exact "reverse" formula for this, but it does assume the option is priced perfectly.

In truth, the volatility part of the Black-Scholes model is the most important single ingredient in the calc, and is also the hardest to pin down to be accurate. Option modeling is a little "art" as well as science.

You can get volatility many places, so you can go off and try some models. I like the one at CBOE.

cboe.com:80/tools/optcalcu.htm

For now, choose Equity options (and European Style options), and use the implied volatility (which you can calc from the current call or put prices, use the bid prices!!).

have fun.
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