GME Implied Volatility Chart Story
Given the extraordinary recent volatility in GME stock, we decided to examine the implied volatility (IV) charts to understand how option traders are reacting and perceiving forward volatility estimates.
Historical Chart Analysis
As illustrated by the three-year implied volatility chart, GME's IV has surged to its highest point at 337. This sharp rise indicates that traders are currently pricing in significant future volatility over the next 30 days. The recent spike in IV suggests that the market expects this heightened volatility to persist in the near term.
Volume and IV Spike
The IV jump was accompanied by a substantial increase in trading volume, as evidenced by the volume bars on the chart. This surge in volume may indicate significant option positions being taken, which could require rebalancing and, in turn, contribute to further stock volatility.
Stock Volatility Comparison
To provide a comprehensive analysis, we overlay the actual 20-day moving average stock volatility on the IV chart. The stock volatility, represented by the purple line, has indeed increased but remains below the implied volatility line. Currently, the 20-day historical volatility stands at 197, while the implied volatility is at 337.
This discrepancy suggests that options traders are anticipating even greater future volatility than what has been observed historically.
Implications for Straddle Prices
Implied volatility also has significant implications for the pricing of straddles. By examining our straddle benchmark price, we can estimate how much the stock might move in the next 30 days. The benchmark currently suggests a potential 75% move, which is remarkably higher than its average of 19% over the past year.
This dramatic increase underscores the heightened expectations of volatility among traders.
Conclusion
In conclusion, the implied volatility chart reveals that traders believe the volatility in GME is far from over. The current IV levels suggest that significant movements in the stock may continue.
The market's anticipation of sustained volatility, as reflected in the elevated straddle prices and trading volume, indicates that GME's tumultuous ride is likely to persist.
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