Comparing Historical Versus Implied Volatility
As seen in the screenshots below, my spreadsheet template confirmed that currently trading September calls (slightly out-of-the-money) were priced 67% above the fair market value, as determined using historical volatility as the input for the Black-Scholes formula.
As a secondary analysis, my template also calculates the percent profit (not IRR, or annualized rate of return) I would make if I deployed a covered-call strategy - that is, shorting the calls but buying the actual underlying stock. This strategy has lower risk than the naked-call strategy I was planning to take, but is less attractive on the down side of the stock price drops.
In any case, I decided that the $20 September call was the right one for me. It was priced at $0.51 a share, giving me a total buffer of about 79 cents before I reached break-even if the stock were to rise in price.
Screenshot of template calculation of historical volatility
Screenshot of spreadsheet template calculation section for implied volatility. Columns represent: 1. Black Scholes Fair Market Value (based on historical volatility), 2. Implied Volatility, 3. Percent by which the current bid price exceeds the fair market value, 4. Percent by which the strike price of the specific option is in or out of the money, and 5. Profit I would make if I took a "covered call" approach and the option were called.