I'm a newbie with respects to volatility trading and options. I recently purchased a book on the topic called "Trading Implied Volatility -An introduction" by Simon Gleadall. It's been one of the most informative books on options that come across and i'm learning a lot about the subject but there are a few things that i'm having trouble understanding. In one of the sections on "Trading the Curve", the author states:

"The trader will have a measure of the relative value. For example, he may track the ratio of (-)10 delta put implied volatility to 10 delta call implied volatility for 3 month options...he is likely to look at a long comparable series of such ratios in the product. His strategy is likely to have some kind of trigger at which point the difference between the current ratio and the historic ratio is significant enough for him to want to trade."

Let's say that i want to track a series of the 10 delta put relative to the ATM put How can it be done? how can i create this "measure of the relative value" and "long comparable series of such ratios in the product" practically?


1 Answer 1


Basically there are three steps to accomplish this.

1 - collect time series of options for several expirations and strikes.

2 - calculate implied volatility surface for every time period, and use model-based or model-free interpolation to create continuum of strikes / expirations.

3 - from the continuous surfaces you can calculate series of any specific points of interest (e.g. 10-delta 3-month IV)

To do this manually is complicated for a beginner, and you should probably use some existing professional service.


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