Hello friends, I am relatively new to options trading - slowing eating like pigeon by doing some writings. For but obvious reasons, I do not intend to do the other like an elephant, so, was wondering if any experienced good soul out of you would kindly explain any technique or indicator using which I could gauge an upcoming high volatility situation for an underlying beforehand. Many thanks!
just like anything that unfolds thru time, you have toplot some measure of volatility and once it crosses some threshold, act on it. That is the holy grail- projecting the hard right edge on any chart w/ enough accuracy. Read up on books by Sheldon Natenburg,Larry McMillan,C Cottle.. lot's of good web educational stuff too.
both!. if the IV is 12 and the IVP is 8th %tile BUT the hv is heading from 10 to 5 that won't not pique my interest , then again it is a mosaic of factors such as seasonality, overall trading mileau and not just a prescriptive approach. That is what makes the exercise hard.
What hurts, even if IV stays above HV and IV being in its low percentiles, still it does not guarantee upcoming high volatility; it could simply fade away! But, ironically, every extreme volatile situation begins with these traits of IV, HV and IVP. So, as a trader I was looking for any scoring method or technique or indicator or a book reference that could provide more insights on how to tackle this mathematically or statistically, instead of hoping that the market would turn volatile. Thank you !
better people here to answer that than me. What I've experienced though is that HV is usually lower than IV, I believe that is the "risk premium" ...anybody care to chime in.
No. That difference is the blow up premium, wherein you are probably comparing 10 day HV over a boring period of trading to 10 day IV. (Watch as that ratio flops post earnings or any volatile event.) HV is backward looking. IV is forward looking. My algo for beginners: sell vol when vix is lower than 19. Buy vol when vix is higher than 28. Stay vol flat in between those vix values. This should equate to about 70% of days being short vol, 22% flat, and 8% long.