in this thread.. .. Kevin Schmit brought it up .. which books are you reading.. a staple is Hull's books.. i've read most of all of the more popular ones.. i don't necessarily get every detail of the subjects talked about it.. but none the less i read it... . http://www.elitetrader.com/vb/showthread.php?s=&postid=3722324#post3722324
That calculation is of historical realized volatility. I believe that he wants historical implied volatility, ie. option pricing.
"The Volatility Surface: A Practitioner's Guide " by Jim Gatheral is all about implied volatility, skew, etc. but may be a tough read. http://www.elitetrader.com/vb/showthread.php?s=&postid=3722324#post3722324 "Understanding the volatility surface is a key objective for both practitioners and academics in the field of finance. Implied volatilities evolve randomly and so models of the volatility surfaceâwhich is formed from implied volatilities of all strikes and expirationsâneed to explicitly reflect this randomness in order to accurately price, trade, and manage the risk of derivative products."
Option Volatility & Pricing by Natenberg (first book I read) Options as a Strategic Investment by McMillan The Option Traders Hedge Fund by Chen & Sebastian Reading the latter two currently. All look at historical and current IV as the basis for deciding on strategy and entry. I already keep spreadsheets for about 50 instruments in which I track Historical Volatility, so that is not a problem. But to know what IV was a month ago say, and what is the IV trend and compare that to Historical Volatility trend will require a data service for sure. There would just be too much data to store in Excel. Hence my question. P.S. - Will look at Hull. I believe Natenberg and McMillan between them have covered the basics. I don't want another book explaining what long and short butterflys are, I am desperately keen on books that deal with practical aspects of trading. The Option Traders Hedge Fund does that, in very simple terms, yet tackles a lot of detail missing in the other two books.
Yes, and with Hoadley once the chains are imported we can see the surface. Until I started on the two books, I took it that looking at the Historical Volatility trend of the underlying would suffice, coupled with looking at the current volatility surface. Apparently not according to the authors, historical IV is a different kettle of fish. I will look at Gatheral's book. As long as it is not full of calculus I can persevere. I managed to finish Al Brook's first book, which must be the worst book on trading ever written.
OptionVue includes free histories of implied volatility for stocks and futures on a daily basis for many years. It can be accessed from their flat files. But it is only one (averaged) number per underlying per day. That is, no skews on strike or on time to expiration.
At 50 days to expiration, Natenberg compares 50 day historical volatility to the IV. With the data limitations you mention, doing this would be tough. Hedge funds with large wallets can afford the exotic data and analytical services, out of reach for retail. Which leads to my question, does anybody even bother?
I have been saving off daily futures options data (all strikes and expirations for futures but not stocks or ETF's) for some time so I will have that data for a couple of years. But the analysis lies ahead of me. You can parameterize the skews so that you only need to save a limited amount of data. I have not done that yet.
Oh I should clarify that I am only talking about what can be exported from OptionVue here. Within OptionVue itself, they also have the ability to manually step-by-step run forward from any point in time and date in the past and test complex positions even intraday hour by hour with legs at various strike prices, for any stock or future. However, this more detailed level of historical data cannot be exported, so I am not interested in it.