Disliked{quote} oh thats because on top of about 15% historical price volatility builtin on the premium pricing models, one will have to pay additional for the higher impllied volitility component in the pricing models. so at higher implied , the premiums will be more expensive. mostly the more premiums will be used to hedge unhedge the writes according. regardsIgnored
hi fti and appleboy, would like to addon to the discussion from another angle
1. options are like insurance, when one has a long position in the underlying and buys a put options, it is insuring against the fall in price
2. when price is in range, volatility is low, there is a higher chance that the options will expire worthless and not be exercised (of course one may just liquidate the almost worthless options before expiry), thus premium will be low because the risk to the writer is low
3. when price is move up/down crazily, voliatiltiy increases and the chances for the option to expire in the money increases, thus writer would not want to sell options unless they are compensated for the risk.
4. also i think that if one incorporate the current market trend, let say is trending up, then the premium for a call should be higher than put because chances are call will expire in the money, but this is just me thinking out loud as i think this is not incorporate into black schole and also i not sure whether a trend or impulse upwards can be considered as volality in terms of black schole. volatility in black schole seems to refer to only the standard deviation of average returns which is kind of different to the ATR type of volaitity we have been talking here.
5. back to topic, so the equivalent of volality to life insurances would be your lifestyle for example. if one always participlate in high risk activities like skydiving, dealing with explosives, naturally insurance premium will be higher than others.
THE ALL is MIND; The Universe is Mental