[drusenko]

this is really interesting to me -- i spent a lot of time examining implied and actual volatility with regards to option pricing right before an earnings report. the short and skinny is that (as makes sense) volatility rises right before earnings are released and falls right afterwards. if you know that volatility is going to rise, you could easily plug the rest of the numbers into the black-scholes model and find undervalued options. they weren't always there, but at times, you could find options that would lose less in value due to time decay than they would gain due to the increased volatility with enough volume to not start making the market -- a great arbitrage opportunity.

unfortunately, i didn't have as much time in college to study this as i would have liked, and all of the good volatility data seems to be hidden behind a pay wall (bloomberg stations!)

one thing is for sure: even though the market approximates efficiency, there are still arbitrage opportunities to be found in the right places.