Implied volatility in the individual stocks call options market: evidence from Malaysia

Azhar Mohamad and Muhammad Rizky Prima Sakti

Afro-Asian Journal of Finance and Accounting, 2018, vol. 8, issue 4, 431-456

Abstract: Among options traders, implied volatility is regarded as one of the most important variables for determining profitability in options trading. Implied volatility implies the future underlying stock volatility, and whilst it cannot predict market direction, it can forecast the stock's potential for large fluctuations in the future. Once the implied volatility has been calculated, the traders can estimate how high or low the stock might swing by the option's expiration, and this estimation helps traders to make informed trading decisions. In this paper, we examine the information content of the implied volatility of individual stocks call options in the Malaysian stock market. We use a daily dataset for 100 trading days for a period between November 2013 and February 2014. Our findings suggest that, for the Malaysian market, although implied volatility does contain some relevant information about future volatility, it is a less accurate predictor than historical volatility.

Keywords: implied volatility; historical volatility; individual stocks call options; Malaysia. (search for similar items in EconPapers)
Date: 2018
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