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I am looking to conduct some analytics with regards to options implied volatility. My advisor mentioned about filtering options with time to maturity of less than 7 calendar days. Is there a particular for that?

Like maybe the options price or implied volatility spikes too much etc.

Happy to provide any additional details.

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    $\begingroup$ He wants you to filter off options with less than a week before expiry or focus only on those? $\endgroup$
    – SBF
    Commented Jul 7, 2023 at 5:20
  • $\begingroup$ She* wants me to filter off options with less than a week before expiry. $\endgroup$
    – KaiSqDist
    Commented Jul 7, 2023 at 7:49
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    $\begingroup$ Let me answer with another question... what's the vega of an option with less than 7 days to maturity? $\endgroup$
    – KT8
    Commented Jul 7, 2023 at 8:18
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    $\begingroup$ @KT8 I’m intrigued. $\endgroup$
    – SBF
    Commented Jul 7, 2023 at 9:51
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    $\begingroup$ Vega vanishes (not just around ATM) as $\tau \to 0$. This can potentially make the fitting of implied volatilities unstable $\endgroup$
    – KT8
    Commented Jul 7, 2023 at 9:58

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It's possible they want you to remove short dated options as the vol of implied volatility increases. In real price terms this isn't visible as much, that's because $\frac{dC}{d\sigma_i}$ decreases with $\sqrt{T}$ for close to ATM strikes.

You see this frequently in 1DTE options in crypto where trades go through at ridiculously high vol of vol but is actually just a function of the bid/offer spread skewing the IV.

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