@JohnLawsCarriage

I understand your feeling.  May I suggest you to ############ . I think his message is still crystal clear about what you are searching.

Thanks also to Nicolas to dig into it.

@JohnLawsCarraige,

Apologies for the delayed response. Local volatility is the volatility for a specific strike/tenor.

Trying to do an example below…

Stock ABC has only 3 options – they expire in 1 week, 2 weeks and 1 year.

1 Week expiration options –> local volatility for 1week expiry   (1w Local Vol = 50%)

2 week expiration = local volatility for 2week expiry (2w Local Vol = 10%)

1 year expiration = local volatility for 1 year expiry (1Y Local Vol = 5%)

Implied Volatility for Stock ABC = 21.67% (not exact calc, but simple average)

In our above example, it appears everyone is trading the 1week expiry. Everyone is making bets that will be a LARGE move in ABC within the week. Specifically, there will be a LARGER move than would be expected by the Implied Volatility %.

The reason why local volatility is important is because the most intelligent people in markets are making markets in options. Their entire business is pricing those puppies appropriately. They have a good idea of where things are likely to go – so we should listen to the “Gohds, like Floki,” or the “machine” when they speak.

KM – do you read this? I could’ve sworn you mentioned something on an episode of the macro show in regards to a comment on here. Wouldn’t be surprised if you’re lurking!