Understand volatility windows (events, expiry)

4.4.9 · Stock-Market › When to Trade — Timing & Sessions

Volatility windows exist hi kyun karte hain?

Do engines yeh windows banate hain:

1. Events (information shocks): earnings, RBI/Fed rate decisions, GDP/CPI/jobs data, budget, election results. Event se pehle → uncertainty option prices ke andar frozen rehti hai. Release hone par → uncertainty ek fact mein collapse ho jaati hai → bada move.
2. Expiry (deadline pressure): derivatives (futures/options) ek fixed date par settle hone chahiye. Jo traders yeh contracts hold kar rahe hain unhe hedge, roll, ya close karna padta hai → mechanical order flow → sharp, kabhi kabhi irrational moves.

Part 1 — Event Volatility

Market kya price karta hai: Implied Volatility (IV)

Options ka sirf ek price nahi hota — woh price encode karti hai ki traders kitne movement ki expect karte hain. Option ki market price se volatility input solve karne par milti hai Implied Volatility (IV).

"Expected move" kaise estimate karein — first principles se derive kiya hua

Hum chahte hain: option market ke according, event tak price kitna move kar sakti hai?

Ek assumption se shuru karte hain ki 1-year returns ka standard deviation $\sigma$ hai (annualized IV). Volatility square root of time ke saath scale karti hai kyunki independent daily moves ke variances add hote hain:

$\text{Var}(T\text{ days})={\sum }_{i=1}^T\text{Var(1 day)}=T\cdot {\sigma }_{\text{day}}^2$

Square roots lete hain:

${\sigma }_T={\sigma }_{\text{day}}\sqrt{T}$

Ek option straddle (ATM call + ATM put price) ke liye expected move ka ek market shortcut:

$\text{Expected Move}\approx 0.85\times (\text{ATM straddle price})$

$0.85$ factor isliye hai kyunki straddle true 1-σ move ko thoda overstate karta hai.

Part 2 — Expiry Volatility

Expiry wild moves kyun cause karta hai

Expiry ke paas do Greeks dominate karte hain:

Common mistakes ko steel-man karna

Active Recall

Connections

• Implied Volatility & IV Crush
• Option Greeks — Theta and Gamma
• Max Pain and Option Pinning
• Intraday Session Timing — event releases aksar session open par cluster hote hain
• Economic Calendar & Earnings Calendar
• Risk Management Around Events
• Straddles and Strangles

Concept Map