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The Black-Scholes formula, and some modern variations of the formula, continue to play an important role in guiding options traders. It may seem backward to use the Black-Scholes formula to determine the IV of an option rather than to determine the theoretical price of an option. But, experience has shown that the IV of an option is a useful concept, because the prices in the marketplace are providing the true value of the volatility parameter for each individual option. Comparison of the current IV against historical norms leads to a more reliable estimation of whether an option is currently overpriced or underpriced.

The brokerage firms that are options friendly will provide IV values in their data feed. Also, the CBOE Web site offers ...

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