The volatility of a stock's price estimated from the stock's option is called ________.
A) market volatility
B) estimated variance
C) a volatility skew
D) implied standard deviation
E) rho factor

Question

Quizplus · Accepted Answer

The implied volatility, also known as implied standard deviation, is calculated from the option prices and represents the market's estimate of the stock's future volatility. The other options are either incorrect or refer to different concepts. Market volatility, for example, refers to the overall volatility of the market, not a specific stock's volatility. Estimated variance is a general term that can refer to different types of variance estimates. A volatility skew is a phenomenon where the implied volatility of options with different strike prices differs, which can be an indication of market sentiment or supply and demand dynamics. The rho factor is a Greek letter that represents the sensitivity of an option's value to changes in the interest rate.

The Volatility of a Stock's Price Estimated from the Stock's