GM Options: Implied Volatility on Day One

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GM Options: Implied Volatility on Day One

When todayís implied volatility for options on a stock is higher than yesterdayís, that may represent tradersí changing views on future volatility.

But what if there was no implied volatility yesterday?


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Although the new General Motors (GM) stock began trading on November 18, options didnít begin trading until Monday the 29th ñ so nobody really knew for sure what kind of volatility options traders expected.

So I decided to track implied volatility for some of these options over the course of the first GM options trading day.

First, hereís a look at GM stock as it traded Monday, November 29:



Looking over the options chain, it appears as if the most active contracts were 33 puts and 35 calls for the first three available months: December 2011, January 2012, and February 2012.

Hereís a look at the implied volatility for those options at 30 minute intervals throughout the day. The bottom chart shows the corresponding VIX at those times.




I basically calculated the implied volatility using the midpoint between the bid and ask. I also decided to wait until five minutes after the open before charting the first data point.

These options contracts werenít as active as I thought theyíd be, so some of the data may be slightly off.

I did check with IVolatility.com, however. They report a 30-day indexed mean volatility of 33.45% for GM options overall (34.63 for puts and 32.28 for calls). Thatís a bit lower than for Ford (F) for instance, which ivolatility.com reports as having an indexed mean volatility of 38.8%. Remember, of course, that one dayís worth of trading (or even a week) isnít sufficient data to base any comparison or forecast.

Mondayís total options volume for all strikes and expirations available was about 66,000, with nearly all of that volume in those first three expiration months I looked at.

All in all, I was expecting more excitement. I though the volatility would be, well, more volatile on the first day a stockís options trade. But it seems as if those who traded GM options that first day were relatively clear on what they expected.

Important Note
While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or probability of reaching a specific price point there is no guarantee that this forecast will be correct.

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