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QANTAS
Qantas Airlines is an Australian airlines company. Qantas was founded in 1920 after KLM and Avianca. It has 65% of Australian domestic market and owns Jester Airways and holds stake in others as well.
Question 1
The graph below represents the Historical volatility and I year implied volatility of call and put options. From the graph we can observe that the implied volatility of call and put option almost collides with each other and the volatility always tends to moves towards historical volatility.Historical volatility measures the changes in prices of security or underlying assets. Implying volatility is the future predictions of the volatility used by the option traders to calculate probability.
Annual Historical Volatility with 1-year implied volatility
Question2
Looking at graph we can see that implied volatility of call and put options has risen very drastically in 2020, there has been increase in one year historical volatility but it is still way lower than the implied volatility.
From the above graph we can interpret that historical volatility serves as the baseline and the fluctuations in options defines options premiums. When implied volatility and historical volatility collides then it is considered options premiums are fairly valued according to the historical values. Although if there is any deviation then, there is a chance for option traders to make money. Looking at the data of Qantas we can see that the implied volatility of call and put options of Qantas is deviating from historical volatility in March 2020, therefore there is a scope for option traders to make profit.
Cross over means when the historical implied volatility crosses each other implying changes in future.
Mean reversion indicates that the stock prices and the historical average will come back to long term average. From the above graph of Qantas, we can see that in past many times the implied volatility of call and put options deviated from the historical volatility, although it came to original position in long run. Therefore in 2020 as well, as the implied volatility is deviating, so there is a chance to make profit for option traders as eventually both – historical as well as implied volatility will come back to original position.
    Statistic
    Historical Volatility 1 Year
    Continuous Call - Implied Vol(ATM)
    Continuous Put - Implied Vol(ATM)
    Mean
    0.2560
    0.3033
    0.3053
    Median
    0.2529
    0.2747
    0.2711
    Standard...