Question

You observed a stock moves 1% stdev each day usually, except for days of earning announcement....

You observed a stock moves 1% stdev each day usually, except for days of earning announcement. In the latter case, it has a stdev of 5%. Today is a Friday. You are interested in an option that expires in 2 weeks. Earning announcement will be on the next Friday.

a. What should be annualized IV now?

b. On next Thurday at close, what should be IV? c. On Friday at close, just after ER, what should be IV?

ER- Earning Report

IV- Implied Volatility

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