Why do we use futures price to determine implied volatility

Options & Futures
1

Course Name: Options Trading Strategies In Python: Intermediate, Section No: 7, Unit No: 5, Unit type: Notebook

Why do we use futures price (nifty_nov_fut) instead of stock price to calculate implied volatility in the exercise? Could you elaborate a little more on this? It would help me learn better if I understand what is going on here. Thanks

nov_call_iv = mibian.BS(
   [
      nifty_nov_fut, 
      strike_price, 
      interest_rate, 
      days_to_expiry_nov_call
   ],
   callPrice=nov_call_price
).impliedVolatility
2

Hi,



The future price is used instead of the spot price as it already considers the interest rate factor. Hence we can pass the interest rate as "0" to the BS model. However, spot price can also be used in the model, but you will have to pass an appropriate value for the interest rate. 



Hope this helps!



Thanks,

Akshay