Diminishing Opportunities in Single Stock Volatility

Abstract

There is evidence that the opportunities for volatility arbitrage in single stock options have been steadily shrinking since 2009 and recent deviations from fair value are smaller than the pre-crisis 2005-2007 period. Using a simple but effective metric for determining deviation from fair value, we see that, on average, relative implied volatilities are trading in tighter ranges than during the mid 2000s.