I am trading the Indian market indices. I calculated the last three years historical volatility. Noted down 1 standard deviation of this value.
Then I took a weekly expiry of options on this index and calculated 1 standard deviation by the following formula:
1Sd = index_price*IV*sqrt(7/365)
The option I chose has 7 days to expiry and it’s an OTM Put option with delta 0.1
The historical standard deviation :volatility is almost twice the standard deviation 1Sd calculated above
The question is what does it say about the market? We still have crazy moves intraday but the market has been in an uptrend for the past 4 months, does it mean that options are underpriced?