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Using ATM Implied Volatility to Standardize Daily Returns

Article Amberdata research
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Summary

This feature note describes a chart comparing an asset’s at-the-money implied volatility (ATM-IV) with its realized close-to-close log return. It uses the implied volatility observed at the start of the interval as an estimate of the expected daily move, then expresses the realized return in standard deviation units. The chart is intended to show the size of each day’s price move alongside the subsequent ATM-IV response.

The document offers a description of the comparison and where to find the chart in the provider’s options interface, but gives no sample observations, calculations, or evidence that the measure forecasts returns. It does not specify annualization, the precise conversion from implied volatility to a daily move, or how to handle changes in the interval. The measure is therefore descriptive: it can help compare realized moves with the market’s implied scale, but alone does not establish a trading signal or predict future volatility.

Key ideas

  • The chart compares ATM implied volatility with the realized close-to-close log return.
  • The opening implied volatility is used to frame the expected move for the interval.
  • The realized return is expressed in standard deviation units to show its size relative to implied volatility.
  • The note describes a visualization and provides no evidence that it forecasts price direction or volatility.

Tags

OptionsVolatilityDerivatives pricing

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.