An online tool estimates the expected future price fluctuations of an underlying asset, typically a stock or index, based on options pricing data. For example, if call and put options on a particular stock are trading at higher prices than historical trends suggest, the tool infers higher anticipated price swings. This estimation is expressed as a percentage and serves as a key input for various options pricing models.
This predictive metric is crucial for options traders. It helps determine fair market value for options contracts, manage risk by understanding potential price swings, and formulate appropriate trading strategies. Historically, estimating future volatility relied on analyzing past price behavior. The advent of sophisticated computational tools allows for a more forward-looking perspective, incorporating real-time market sentiment reflected in options prices.
