Description
Actual Implied is the calculated At-the-money implied volatility given the various strike prices. Call and put implied gives the current market implied volatility for each individual contract using the mid price.
Opinion as of 5-26-2020
Tesla is one of the most speculative securities in today’s market. Analyst’s recommendations on Bloomberg have ranged $1 to $1000 at any one given time. This is even more visible inside the options chain. As you can see from the volatility graph the strikes further away from the market price are increasingly mispriced. Meaning that the market priced implied volatility for specific contracts is different from the actual implied volatility for that given strike. In an example trade the 990 6-19 Call who’s implied volatility is 59.3% , a 17.9% difference from the actual implied volatility. To go short on volatility and remain delta neutral , unaffected by underlying moves, you would sell the 990 call and buy 15 shares of Tesla stock. Since Vega is currently trading at 0.49 the intrinsic value of the call option should be $1.28 even though it is trading at $10.05. On a per Vega basis one can expect a $49 profit/loss per 1% movement of volatility.
*DISCLAIMER: THIS IS THE OPINION OF THE WRITER AND NOT A RECOMMENDATION OR OFFER OF SERVICE OF ANY KIND TO THE READER. IT SERVES AS AN EDUCATIONAL TOOL ONLY*
Purpose
Allows the investor to see what option contracts are missed priced due to implied volatility. Knowing this, the investor can make a delta neutral trade that is either Long or Short volatility. As the volatility begins to correct itself, regardless of underlying movement, the trade will become profitable as long as the overall position remains delta neutral.