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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Tom Pulley who wrote (83772)	4/27/2003 8:26:15 PM
From: Hawkmoon	Respond to of 99985

A very good explanation... I wonder if a VIX formula could be developed for various market sectors using puts so that folks could determine which industries where investor complacency is developing. Hawk

To: Tom Pulley who wrote (83772)	4/27/2003 11:56:53 PM
From: William	Read Replies (1) \| Respond to of 99985

But, I actually don't really understand this myself since I had understood that Black Shoals calculates option premiums based on volatility, yet it appears that this implied volatility is affected more by how bullish people are than by price swings. See this: stockcharts.com So here is what I understand: Black Scholes model calculates theoretical option premiums based on volatility which is derived from standard deviation. However, the volatility in reality is not exactly the same as the one obtained from standard deviation. So the implied volatility is backward derived by plugging in the real traded option premium value into the model, some sort of experimental value yet more in line with trader's real sentiment... Hope that makes sense .