In the last lesson, we already knew the concept of volatility and several forms of it. So in this class, I'll talk to you about how to predict and analyze volatility.

Let's start with the simplest stock index option-S & P spy. We will not say much about the corresponding historical volatility, which can be obtained by the standard deviation of S & P's price return. Now let's talk about the implied volatility of S & P, the vix panic index. Let's take a look at vix's picture first.

Here I would like to summarize a few key points of information to share with you.

First of all, vix has a regression, every higher than, with the passage of time will slowly return. Second, vix will not remain in a state for a long time, as the old saying goes, it must be together for a long time. When it comes to vix, it means low for a long time, high for a long time and low for a long time. The last point is that the decline in volatility is inevitable, while the rise in volatility is occasional.

These are the main points I have summed up about volatility forecasting. We can see that there is actually an opportunity to follow the volatility. At the same time, vix is an indicator of the implied volatility of S & P options. When vix is low, options are cheap. When vix is high, options are expensive. At the same time, vix is also called panic index. When vix rises from a low, it is likely to be accompanied by a correction in the market. When vix falls from high to low, there is a good chance that the market will rise. The principle is also simple: because when there is no much news in the market, volatility will be at a relatively stable value, once there is any change, the market begins to become unstable. If investors or institutions get nervous, they need to start hedging through options. In this way, the option price will grow very quickly because of a lot of demand. This leads to higher volatility. As the risks brought by the market are gradually determined, and if the follow-up risks do not continue to increase, investors and institutions also begin to understand the risks. Risk emotional elimination, we no longer use options for risk aversion, resulting in a fall in option prices, while implied volatility falls.

Therefore, every rise in the implied volatility of the market will be accompanied by a certain risk, and if the risk does not continue to worsen, it must be accompanied by the characteristics of the decline and regression of implied volatility.

Therefore, the prediction of volatility is mostly low or long-term low, when something will happen in the future, or happen, it will be accompanied by a rise in volatility. As events ease and subside, volatility will once again be slowly low and long-term low.

In addition, the analysis of volatility, historical volatility is accompanied by the historical price of the stock price, it is more of a past tense, when the stock price is over, we can look back to see how the stock price fluctuated in the past. For example, when the stock price fluctuates from $30 to $100 in a year, the historical volatility is very large. Compared with the fluctuation of a stock from $50 to $60, the volatility is much smaller.

From the perspective of books, it is clear that the historical fluctuation of 30-100 is greater, while that of 50-60 is smaller. The significance of this historical volatility is that when we refer to future volatility, that is, implied volatility and option prices. It is obvious that the implied volatility of the stock 30-100 will be higher than that of 50-60, and the relative options will be more expensive. This is based on the analysis of past historical volatility. But if the 50-60 company is now facing the opportunity to be acquired, once the acquisition will be sold at $90, then imagine that the implied volatility of the 50-60 company will be much higher than 30-100 at this time?

Therefore, the analysis of historical volatility is established to match the implied volatility. Implied volatility can be said to be a real volatility to judge the future, which can reflect the volatility of the present to look at the future.

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