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FB Options expiring this Friday had an implied volatility of about 100% before close of day. A 20% drop in 2 trading days has around a 1/700 chance of happenin
by usaar333 8y ago
FB Options expiring this Friday had an implied volatility of about 100% before close of day.
A 20% drop in 2 trading days has around a 1/700 chance of happening under a Black-Scholes model.
So yes, this does happen in the market, but it's a reasonably rare event.
(As another data point on how rare this was, $190 puts were being sold for $0.3/share. Those are now worth $17, a 50x return)
Sources:
https://finance.yahoo.com/quote/FB/options?p=FB https://finance.yahoo.com/quote/FB/options?p=FB
https://www.hoadley.net/options/barrierprobs.aspx https://www.hoadley.net/options/barrierprobs.aspx
- adrianN 8y agoA 1/700 chance per day means that it happens every two years or so, right?
- Danieru 8y agoTwo years of days where implied volatility is 100%. That is not an everyday level of implied volatility. A single day move of twenty percent is rare even in small caps. Facebook moving that much means the market did not except even the risk of something this big. For comparison when Nissan announced a recall of over a million cars their stock moved less than three percent. Single day moves are rarely so large, and almost never this large for a single company.