All Questions
Tagged with implied-volatility options
307 questions
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About the implied volatility as average volatility over the life of an option
The first time I read about local volatility, implied volatility turned out to be the average volatility from today to the option's expiry date.
Let we have two Call options, $C_1$ and $C_2$, expiring ...
- 2,153
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288
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VIX vs S&P: Drift in the hedging residual?
I am looking at the daily returns of the VIX index (dVIX ) and the daily returns of the S&P 500 (dS).
I am running a linear regression (using 0 intercept) and get a regression slope of -1.4, i.e.
...
- 263
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240
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Why and how is Implied volatility directly related to stock price but inversely related to strike price?
I know that in equity markets there is a volatility smirk which results in higher IV for lower strike price options because of crashophobia and leverage related factors but I can't wrap my head around ...
- 11
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205
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construct volatility smile based on historic observations
So I calculated historic volatility/skewness/kurtosis for a commodity. I now would like to construct a volatility smile that reflects this historically realized distribution. I tried using some ...
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2k
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Formula behind pandas.Options() implied volatility
I noted that implied volatility (IV field) from pandas.Options class is very different (especially, for out of money options) than what I compute with Black-Scholes model. (risk free rate is pulled ...
- 239
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327
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Volatility tools / web sites?
Could someone give recommendations regarding volatility tools / web sites that they find useful? I am looking for information that my brokerage platform does not provide. Specifically, I want to see ...
- 71
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59
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Change in Option Price given Change in Implied Volatliity, Moneyness, and Maturity
I have an implied volatility surface parametrized into moneyless-maturity coordinates. At each period of time, I only have access to an option's moneyness (K/S), maturity, and change in implied ...
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106
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Delta of ATM barrier option
Can you please share the intuition behind the delta of a ATM down & in PUT being less than a ATM plain vanilla put (usually around 0.3 instead of 0.5)?
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Summarizing the Volatility Skew as a Single Number
Related questions to this topic/subject:
Expressing Volatility Smile as One Number
Volatility skew and how to capture it?
In both posts, the authors/respondents recommend using the second derivative ...
- 2,231
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120
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What is the informational content of the volatility skew?
The option-implied volatility is well-known as a measure for the risk-neutral future expected risk for the underlying asset. However, the market prices of options (across different strikes) imply ...
- 2,231
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249
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Vol Smile Call/Put Wing calibration
Is call/put wing volatility smile calibration approach used in practice? To calibrate an index (SPY) using only more liquid OTM calls/puts, to kind of use an "if" condition on K to S0 to ...
- 145
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71
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We can forecast the direction of (constant maturity) implied vol of various indices well. Is that useful?
We've been financial building ML models for years, and have multiple portfolios live - but we're new to the volatility space, none of us are options traders.
How could we effectively use implied vol ...
- 111
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3
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552
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Implied volatility greater than realized volatility at all strikes?
It is usually stated that the implied volatility is statistically generally --- not always --- greater than the realized volatility. It seems this statement is made with regard to the implied ...
- 2,876
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850
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Python - yahoo finance options data - volatility smile plot
I have plotted the IV of TSLA options using yahoo options data, but the scatter plot doesn't look right, can anyone advise why the plot looks like this? I would expect to see a vol smile plotted.
EDIT ...
- 145
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233
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How did Jim Gatheral come up with the SVI parameterization?
I know it has nice properties relating to Roger Lee's moment formula and the Heston model asymptotics, but I am just curious how Jim Gatheral came up with this formula in the first place. I read a ...
- 301
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264
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computing implied volatility from greeks
Given a set of greeks (delta, gamma, theta, vanna, volga, vega, rho) and other information such as the dividend rate, dividend forecast, and realized volatility for American or European Options but no ...
- 2,133
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160
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ESSVI calibration problem in translating parameter bounds
I am trying to implement the calibration algorithm presented in the "ESSVI Implied Volatility Surface" white paper from Factset by Akhundzadeh et al.
The eSSVI model includes 2 variables ...
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124
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How can I derive the price of american options given the european options prices? [closed]
I have the european volatility surface of a given asset. What is the correct procedure to compute the price of the options with american exercise type?
- 330
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49
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How is implied volatility on future treasuries used to expect Forex volatility? [closed]
I was listening to some traders talk amongst themselves.
One emphasized the importance treasury implied Vol as a useful indicator for forex vol/trading.
I don't totally see the connection.
I have a ...
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100
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Why IV surface over call price surface? [closed]
Why do options traders usually model and trade the IV surface? I appreciate that the IV surface is more standard across assets, but why do we go to so much trouble with the IV surface?
To me it seems ...
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106
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Contradictory arguments for ATM/ITM/OTM option demand
I am trying to understand which of the options have the most demand, and found this discussion here. The arguments presented are as follows:
ATM is more liquidly traded than ITM/OTM because they are ...
- 185
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155
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Best Way To Compute the Volatility Risk Premium
I'm trying to come up with a measure for the volatility risk premium (VRP) for a strategy I want to implement, but I'm not entirely sure how to proceed. My situation is as follows.
The underlying is ...
- 41
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340
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Issues with calculating IV with options bar data
I am currently working with some options OHLC data (30 minute bars) from IBKR for a range of strike prices, maturities and for both calls/puts. For each bar, I am trying to back out the IV (crudely ...
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83
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Compare rich / cheap options on 2 underlyings
this question can turn out to be very basic but its something that has been bugging me.
Say I want to buy/sell an option on A vs sell/buy an option on B.
Facts I know
A and B are different ...
- 11
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71
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Implied Volatility - Underlying vs Monthly Expiration vs Individual Options
I'm working on calculating implied volatility for historical options data taken from the tradier api. I'm using Davis Edwards fantastic python implementation of options pricing models to get ...
- 111
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128
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Practical Effect of Time-Decay on Variance Swaps?
I want to implement a long vol hedging strategy by rolling spot variance swaps every month. This would be done through replicating spot VIX using the definition of VIX as a portfolio of OTM one-month ...
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53
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Which volatility should I use in a long-term futures swaption?
Consider an option expiring in 12/31/2023 on an hourly swap from 2024 through 2029 such that: a) I pay the floating price of electricity and b) receive $20 in return. Using shaped monthly futures and ...
- 555
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226
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How does a concave up volatility smile correct high kurtosis for ATM option contracts?
Theoretically speaking, if we are to assume the following:
Constant implied volatility throughout all strike prices
The underlying's prices change distribution is log-leptokurtic and symmetric
Then ...
- 13
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499
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Can you use the SABR implied volatility in the Black Scholes formula?
The SABR implied volatility is often used as an input in Black's model to price swaptions, caps, and
other interest rate derivatives.
I'm wondering whether you can use the SABR closed form solution of ...
- 137
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428
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Average daily move from implied volatility of risk reversal
I'm trying to understand an example in Euan Sinclair's Option Trading book. On page 239 he gives a risk slide and pnl from a long 30 delta put short 30 delta call position. He says the implied ...
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130
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Implied volatility and greeks of options
When we are calculating deltas or vegas for different strikes should we use the underlying asset's volatility or should we use the implied volatility for the specific strikes at a fixed maturity?
...
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183
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Vol surface fitting with 5 degrees of freedom
For an options market making operation I need to be able to build a volatility surface, based on only 5 degrees of freedom, like e.g.: MaxPut, MaxCall, Skew, Curve and At The Money Vol.
Is there an ...
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2
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201
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Practical approach to get average option IV
Is there a practical method to calculate some sort of average IV for each level of moneyness of equity options?
I'm thinking of an algorithm to find mispriced options and do to so, we need to figure ...
- 296
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727
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To use daily volatility or annual volatility
From Joshi's Quant Interviews books:
The statistics department from our tell you that the stock price has followed a mean reversion process for the last 10 years, with annual volatility 10% and ...
- 2,662
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384
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How To Calculate The Implied One Day Expected Return For Earnings
I am trying to figure out how to calculate the one day expected return given I have the event volatility. In his book Trading Volatility, Correlation, Term Structure and Skew, Collin Bennet (link) ...
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126
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Procedure of model calibration
Say that your end goal is to price an equity exotic derivative under both Heston and the local volatility models (Black Scholes model with vola dependent on strike and underlying level). Do the ...
- 628
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177
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What is the cause of a "broken" volatility surface?
I am currently working on a project for which I need the implied volatility surfaces, to estimate the value of plain-vanilla European options with different strikes (cannot be observed directly in the ...
- 156
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224
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Term structure of the ATM implied volatility of short term weekly options
It's an empirical fact that the implied volatility of short term weekly options are significantly higher than options that expire in a few weeks, and the volatility of the near term options get even ...
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343
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Time frame for implied vs realized vol
I've seen charts of implied vol (IV) against realized volatility?
What time frames do people generally use to calculate each?
For example, do people generally use ATM 1 month call options to get IV, ...
- 313
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2k
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Delta Volatility Surface Usage to value the option
I always find myself in the unknown charted territory when it comes to non-Linear Instruments. I come across the scenario, How to value the option using Delta Vol surface?
Example
I have CME traded ...
- 137
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143
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Calculate minimum IV increase to offset theta
How would one calculate the minimum implied volatility increase necessary to offset theta decay?
IV is typically a percentage, while theta is a dollar value.
In theory I think I could look at what ...
- 1,872
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113
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Hedge volatility decreases
My particular options positions are typically a long delta, and long vega. Decreases in implied volatility, or specifically the VIX, can drastically alter the profitability of my position.
Is there a ...
- 1,872
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192
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Filter options used in the construction of implied volatility surface
Currently trying to model the IV Surface using the APPL options, to compare how different models of the underlying move the IV Surface. However, after getting the data, I've seen that some option ...
- 1,426
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630
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Can gamma of an option be greater than its delta?
I have a currency pair usdinr put option with strike price at 73.5 INR, risk free rate 0, underlying price of 75.4025, days to expiry is 15 and iv is 5.9%. Delta of this option is -0.019 and gamma is ...
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321
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implied volatility for close to expiry ATM options vs VIX
All throughout my MFE I was told that implied volatility for close to expiry ATM options is a reasonable estimate for current volatility and tracks realised vol pretty well. Then why does VIX measure ...
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410
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Is there a Dupire's Formula for put options?
Generally, Dupire's formula is taking derivatives on the call option prices. Here it only uses information of the call options.
If now we have the data including both call and put options, is there a ...
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2k
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Does an option's price "ratio" with the underlying security price?
I'm trying to understand option pricing better.
Let's say security ABC is \$40, and a 38 PUT option with 40% implied volatility (and 90 days till expiration) is priced at X. If security ABC then ...
- 503
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2
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166
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Empirical equivalent for implied vol
Implied volatility is supposed to show volatility of the underlying over next k days where k - maturity of the option. Say our stock price is $S_t$ and percentage return is $r_t$. Then which empirical ...
- 117
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3k
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What the implied distribution really is?
From volatility surfaces we have a implied distribution of $S_T$. This distribution is the real world distribution or this is a risk neutral distribution?
- 863
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128
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Why would you take a Loan when trying to Illustrate a Riskless Hedge?
I'm reading an article trying to derive option pricing with a simple approach, but I got stuck. In the second paragraph of this article (Name – Options Pricing: A Simplified Approach), which takes ...
