> Another interesting way to analyze limit order book, while combining the price > and the quote size, is to view each bid and ask quote as call and put: When an > investor places an ask limit order, he effectively grants other investors the > right, but not the obligation to buy his stock at the limit price. This is > similar to writng a call. Same logic can apply with respect to bids and puts. > The bid-ask spread represent twice the premium that the investor ( or market > maker) expects to earn in return for granting such right. Within that > framework, the time to expiration t =(quote size / average daily volume ). > Then, black-scholes type formula can be inverted to get implied volatility of > the bid and ask quotes. Change in average implied volatility may be predictive > of the stock direction in the same way VIX index is. >
I never thought about it in that manner, but yes, it makes sense. -- You received this message because you are subscribed to the Google Groups "JBookTrader" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/jbooktrader?hl=en.
