To look at a particular example to illustrate the point.
Lets try the current NCP April Expiry 11.50 Call
Last Sold at 10.5c per contract (but range of 10-14c for the day).
With Expiry next Wednesday, if we plug in the number of days til expiry as 6 Days then we get an IVol of approx 30% (way lower than what we have come to expect from NCP)
OK Lets change the Number of Days to 3 (Thurs, Tues and Wednesday), and Bingo out pops our mid 40's %.
Trick is whats the best way to make money out of this.
Writing ETO's with a decay like this would be like steeling money from a baby, considering some folks were forking out equivalents IVol's of around 55-60% (assuming only 3 days to go, not 6) based on some of todays trades of the particular ETO.
Not that I would write an ETO on this particular example its just that I'm using it as an example.
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