I have been using the formula of
normalized (annual) vol / sqrt(252) to calculate basis points per day breakeven.
I have noticed that many people then multiply by 80% or sqrt(2/pi)
The only explanation I can find is the sum of the basis points per day * days to expiration is greater than the total cost, and it is approx 80% of this cost.
Any insight into this?
normalized (annual) vol / sqrt(252) to calculate basis points per day breakeven.
I have noticed that many people then multiply by 80% or sqrt(2/pi)
The only explanation I can find is the sum of the basis points per day * days to expiration is greater than the total cost, and it is approx 80% of this cost.
Any insight into this?