Implied volatility in the individual stocks call options market: evidence from Malaysia
Among options traders, implied volatility is regarded as one of the most important variables for determining profitability in options trading. Implied volatility implies the future underlying stock volatility, and whilst it cannot predict market direction, it can forecast the stock’s potential fo...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English English |
| Published: |
Inderscience Enterprises Ltd.
2018
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/70286/1/70286_Implied%20volatility%20in%20the%20individual%20stocks_article%20complete.pdf http://irep.iium.edu.my/70286/2/70286_Implied%20volatility%20in%20the%20individual%20stocks_scopus.pdf http://irep.iium.edu.my/70286/ http://www.inderscience.com/offer.php?id=95246 |
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| Institution: | Universiti Islam Antarabangsa Malaysia |
| Language: | English English |
| Summary: | Among options traders, implied volatility is regarded as one of the
most important variables for determining profitability in options trading.
Implied volatility implies the future underlying stock volatility, and whilst it
cannot predict market direction, it can forecast the stock’s potential for large
fluctuations in the future. Once the implied volatility has been calculated, the
traders can estimate how high or low the stock might swing by the option’s
expiration, and this estimation helps traders to make informed trading
decisions. In this paper, we examine the information content of the implied
volatility of individual stocks call options in the Malaysian stock market. We
use a daily dataset for 100 trading days for a period between November 2013
and February 2014. Our findings suggest that, for the Malaysian market,
although implied volatility does contain some relevant information about future
volatility, it is a less accurate predictor than historical volatility. |
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