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Strategies & Market Trends : Black and Scholes Options Evaluation

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To: Uri Miller who wrote (18)	1/6/1997 9:25:00 AM
From: Harold Lanier	of 44

Uri, LN is Natural Log which is Log to the base e. Using Historical Volatility formulas which you have obviously been reading about such as the High/Low method (.601*ln(H/L) produce some very interesting trading stradegies. The idea is to compare Historical/Statistical Volatility against implied Volatility. A good study is comparing say the VIX which is the implied volatility of the OEX against its historical volatility. What you find is that the VIX is almost always significantly higher which would imply that your best stradegies in trading the OEX would involve selling options. In otherwords the OEX options are overpriced in comparison to the OEX's historical volatility. Probably the most comprehensive book on Volatility is Natenberg's Option Volatility and Pricing. Be careful in your reading on the subject of Volatility. Many writers intermingle Volatility, Standard Deviation and Variance. John did an excellent job of explaining Standard Deviation and the University web site certainly demonstrated the formula for Standard Deviation. Variance is Standard Deviation squared Harold Lanier

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