Options glossary · Formulas
The straddle approximation
The price of an at-the-money straddle from the underlying, the implied volatility and the time, close enough to do in your head. The 0.8 is the same 0.8 that turns a standard deviation into an expected move. Straddles scale with the square root of time: two days is not twice one day, it is about 1.4 times.
The formula
Straddle ≈ 0.8 × S × σ × √t
Where it comes up
Part 2 of the course, Option pricing: what goes into a price, the straddle approximation, Black-Scholes and where it stops being true. See the course →
The full picture
Three and a half hours with the man who traded these
Sven Hubens, ten years an options market maker at Optiver and Maven, adjunct faculty at The Options Institute at Cboe.
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