Hobgoblin, I am a hard woman. It is sort of chicken and egg,...

Hobgoblin, I am a hard woman. It is sort of chicken and egg, exactly.

Here it is in algebra:

FV = B&S(StockPrice, StockVolatility, ExpiryDate, ...).

You input the inputs and B&S formula gives a FV. Well what is that? FV - fair value - that is the theoretical price of the option. It is probably not equal to the market option price (last, bid or offer).

Well, if you change the StockVolatility number you are plugging into B&S up and down you should get a FV fall out that is equal to the market option price. That number is the implied volatility.

You have to avoid confusion between the StockPrice, the StockHistoricalVolatility, the WarrantPrice and the WarrantImpliedVolatility.

gaweb's answer above was totally confused -he/she/it has brought in the WarrantHistoricalVolatility. And, Mr gaweb, here is something you said above "and vega/kappa which is a measurement that reads the speed of implied volatility" - vega does not measure the speed of IV. It is the derivative of FV with respect to volatility - ie the speed the FV changes as input volatility changes.

When your friendly warrant trader say "its implied vol is hi" she mean "I have to input a big number for vol into my modelto get FV to be what I am offering it for". (This is Mr_Crashy_Option_Strategist's conspiracy theorem.)

cheers,
Auntie_Idiot