Calculating Implied Volatility from an Option Price Using Python

I look at using Newton’s method to solve for the implied volatility of an option. This is done using the Black-Scholes model and a simple Python script.

My mouth and brain were apparently totally out of sync when discussing the numbers in the slide showing the spreadsheet results for the roots of a parabola. This is one of those situations where you should pay attention to what I am thinking rather than what I am saying. In any case, the numbers in the spreadsheet are correct.

[thetagang]

Thanks for this Kevin. I’ve been trading options for the past year. Really looking forward to learning how to integrate it with options

[SuperJ]

Thanks for the video. I used the code and it is reasonably accurate most of the time.

For the initial guess i changed for this estimate:


which is a close estimate to IV provided by Brenner and Subrahmanyam (1988).

[NEGAO]

thank you for the video kevin, please make sure making more content, you have great teaching techniques!

[asiphemzaza]

Thank you so much for your clarity, Kevin. Chef's kiss!

[saiprakash]

Good one Kevin..Thanks for sharing.
Cheers...Subscribed.

[marcelotaipe]

Really well explained and good video as a whole.

[ghanashyamtalwalkar]

Great Video. Loved it.
A couple of very minor points:
y -y0 = m(x -x0) and so x = (mx0 - y0)/m . At time 4:39 some other equation for x is listed... must be a typo.
For tolerance.... 1e-3 is 0.1% not 1%

[baijuthomas]

Would be highly appreciated if you could show the implementation of bachelior and blackscholes in python . As you know to pick the iv for negative prices CME has switched to bachelior with greeks .Thanks 🙏🙏

[Alexander-pktu]

What about deep in/out of the money options close to expiration where vega is not easily defined?

[uk]

Thanks for this video Kevin.
I pulled your code from gihub and tried to run for my inputs. There are some scenarios where, the code is not able to find implied volatility. Is this because the implied volatility does not exist for those Option contracts

[HenioGracie]

Mr. Kevin i have one really simple question: the standard deviation value at 9:00 is completly arbitrary or one should reffere to the historical volatility for a sake of model precision?

[HenioGracie]

Sorry, is that in scipy norm.pdf a kind of random? Mb i am using a wong module in jupyter.
The proper equation for Vega, according to John Hull, is S * sqrt(t) * N'(d1) ---> and that is N`(d1), not N(1), and that stands for {1/(sqrt of 2*Pi)}*e^((-d1^2)/2)). I guess that Pi thing amkes the vega values highest at ATM, at least that is my understanding of it.

Sorry if i am to picky on this, it is just IV option chain did not make anysense at all and i was puzzling why.

[johna]

Brilliant video Kevin. You've condensed what I thought was a complicated topic into an extremely easy to follow 20-minute video. Thanks a MILLION !!!

[dineshjoshi]

Why volatility consider 0.5 plz explain?

[Dylan-zluk]

Quite not understand. Far otm options have high iv but low options prices. Kind of contradict itself. Can you please help me out why that is ? Much appreciated.

[snpryan]

do you know any tricks to write a program to import historical options data for certain stock? For example, if I wanted a one year weekly close price of calls with 3 month or less expiration for AAPL?

[absallaboutstocks]

How to run this code in spyder (python 3.8)