M* Philip,
Curious to see what kind of power you have over there and also your thoughts on a particular idea. The question triggered a thought i have had for some time.
I train a lot of people on investing in options and found myself always curious on one item when it comes to Implied V. Why is there not an indicator or database available to the average investor that on a moments notice gives a review of avg. vs. high/low implied volatilty levels. Trust me when I say I understand the complications of a system like this as the at the money strike changes and then the need to create a rolling contract (merge the data of two diffence times) in order to display a true historical implied volatility level for an option. You and I likely have a intuative feel for high and low, but the average investor could use more help. So with Morningstar's wonderful databases, anything in the works that might fill that gap.
On a deeper note, Black Scholes math has always been based on the assumption of the standard bell curve to capture a typical stock prices volatility. However, as you probably well know in many cases on shorter-term options volatility may be more random and therefore end up with a skewed curve and mispriced options. Is there any work you know of trying to address this problem? Keep in mind the fall in LTCM (despite liquidity issues much like we have seen recently) was partly due to relying heavily on a model that does not price options well during price shocks. I know in the end part of the fun of trading options is looking for mispriced options due to high low volatility levels and yet it seems no real work has been done to address some of the weaker assumptions made in the Black Scholes model. That said, it don't know that I would have been as good as they were at pricing options in many cases.
Sorry if I got a litle to deep there? most of my time training customer's is centered around more basic concepts.
BGF
