Comparing Implied to Historical Vols

Discussion in 'Options' started by boxman, May 3, 2008.

  1. boxman


    What's the best way to to compare implied to historical vols? - Do you compare the front month implied to 1 month hist, 3month implied to 3 month historical etc. or compare all implieds to just one historical figure (eg 30/90 day). If the latter which is the best historical vol with which to compare?
  2. Well whats your purpose of comparing hist to implied? If you are planning on arbitraging the past against the future, you better know what the market is expecting for the future. ie no matter how smoothed the hist vol measure (ie 90 days is a smoother reading vs 30 days usually) vs the IV, you are still left with the fundamental difference between the two vols - news expected (or not expected) versus what happened in the past.


    1) looking at hist vol on a biotech 30 or 90 days before FDA release for drug approval may say 10% when IV trades at 150-300% --- There is simply no arbitrage opportunity that is a gamble worth taking, unless you have inside info. And in that case, you aren't trading vol - you are trading inside info.

    2) maybe its worth looking at how much IV trends as much as it 'chops'.... study the vix ... it will tell you what to expect.

    3) if you use ninjatrader, you may want to check out the histvol and histvolany indicators i programmed. That way you can see long term historical volatility for as long as you have chart data.