So What Exactly the ATM Options are telling with respect to Standard Deviation ?
Here is a snapshot of NIFTY Bank along with the ATM options in the next expiry –
The IV of CE and The IV of PE are also not the same. That is something that newbie noobs learn.
The IV can be seen in Options Chain which You can find in the NSE website. Or, You can use this dashboard I made.
The current price of BankNIFTY is 44612.05
The current strike which is ATM is 44600
First Remember that the values or anything will not match with Sensibull. They use Black 76 Model. You can put the values in the calculator below (I literally made that bare hand).
Now, the Put IV and Call IV is different. But that difference is small.
The difference is small enough that the value is insignificant if I just use HIstorical volatility i.e. India VIX i.e NIFTY’s ATM’s IV. Now now the difference will be big if it is stock.
Anyways, The goal is, if you know the IV. (You can put the IV from the option chain if you want to be Mr.Perfectionist) –
The goal is to get the delta. (for this discussion)
Call Delta is .555
Put Delta is .445
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Before I type any more, Let me confuse you more beforehand so that you don’t get confused by yourself later.
Sensibull shows Put option delta as .44 and call option delta as -.56
Zerodha’s calculator matches with mine.
This is exactly why I have trust issues and create everything on my own hand after understanding things.
Sensibull will match if you follow black 76 model. read
So
How you will calculate the probability of profit in atm options.
It depends on what model you choose
And
Relation between implied volatility and standard deviation
A short straddle does not capture 1 standard deviation move!
A short strangle does! Atleast as per Black Scholes model.
Strikes with a probability of 16% ITM / 84% OTM capture a 1 standard deviation range for an OTM option.
Slight more confusion
IV of PE is 11.52%
It means BN will do ± 11.52 % before the end of the year.
read if you want – > Standard Deviation & Options – Unofficed
i write in a messy way but the mess is necessary to make things clearer.
what is the current date to expiry? there are 3 trading days left
black 76 will take 3
black scholes will take 5 after adding 2 non trading day as well
The implied volatility of a stock is synonymous with a one standard deviation range in that stock if there are 365 days to expiry because in that case, Standard Deviation
= Implied Volatility x Square Root of Time
= Implied Volatility x sqrt(365/365)
= Implied Volatility
so It means BN can do ± 11.52 % * sqrt(5/365) = 1.34831402% before the end of this expiry…
at least as per black scholes model