Standard deviation is very useful to evaluate upside and downside probability. Within the SCOTS program you can instantly see the Standard Deviation of the instrument that is being evaluated.

Standard deviation is a method used to determine an expected trading range of an underlying future or stock contract over the remaining life of the option. Optionomics' research has found a high correlation in the use of Standard Deviation to determine market-trading ranges.

Alpha is derived from option-implied volatility using the Whaley or Binomial formulas. The Alpha represents what the option would be worth if the underlying price and the option strike price were the same. Alpha represents pure "time value."

Option traders, through buying and selling activities, determine the value of the option premiums based upon the expected volatility of the underlying future or stock contract. As volatility increases, option premium rises reflecting higher implied volatility as calculated by the formula.

Because implied volatility has become a standard that all option traders recognize, Optionomics has created the "Alpha factor".

The "Alpha factor" (for any number of days to expiration) can be multiplied by implied volatility and then multiplied by the futures price to compute Alpha or pure time value. Two and 1/2 times alpha represents a one standard deviation move in the underlying price.

To see a Grid Table for the Alpha Factor click here.