Bond Spreads and Implied Vol

[dannyrussell53]

Just a question and im curious to your responses.

So I was looking at the corporate bond spreads and was wondering if there was a model anyone used or has thought of that would take into account the spread widening and tightening vs the option price. Im thinking this will have an affect on the underlyer and also mab the implied vol (thinking more risky stocks have usually more vol) since the bond market see's more risk I was wondering if there is a disconnect you could take advantage of.

Will def have to do more research and mab use some examples to create a model myself.

 

[Rhody Trader]

I haven't done any research on this but keep in mind that bond spreads are first and foremost a function of credit differentials - at least perceived, anyway - whereas option implieds are a function of expected volatility in the stock. These are two different things and under normal circumstances are likely to only have a minimal linkage. During more extreme periods, though, they may be quite correlated.

 

[Martinghoul]

Yes

 

[FarQuinnell]

looking at convertables might offer some clues. Just a thought.