Implied vol from a straddle quote
A stock trades at $100. Its 3-month at-the-money straddle (one call plus one put, same strike, years) is quoted at $8.00. Using the standard small-vol approximation that an at-the-money call is worth about , back out the implied annualized volatility that the market is pricing in. Give it as a decimal (e.g. for ), to three places.
Show hints (2)+
- A straddle is a call plus a put — at the money that's ~twice the call, so straddle .
- Solve with .
Answer
Reveal answer →Final answer
0.2 (± 0.005)
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Asked at: Optiver, Flow Traders