Such a thing as "historical" implied volatility?

Discussion in 'Options' started by ehsuhuang, Feb 27, 2006.

  1. Is there a piece of software that will graph the implied volatiity that was "implied" in the past? In other words, I don't want historical volatility, (based on the underlying's prices that was realized) but I want a history of the implied volatility.

    The reason I want this is that I purchased options simply as a substitute for the underlying (for leverage and for risk control). For example, if I think that a stock will go from $10 to $15 in a few days, then I'll purchase the option 1 or 2 months out. Using Think of Swim's software, I'll calculate that the option price should go from $2 to $4. However this is all theoretical, since it's assuming the volatiity stays the same. Lo and behold, three days later when the underlying's price reaches $15 and it's time to sell the option, I find out that it's only worth $3, which I'm sure is due to a change in the implied volatility.

    I'd like to study this further, but to do that, I'll need to chart the implied volatility in the past, correct? Is there software that can do this to help me study this particular situation? I guess I could just jot down on paper the implied volatility day by day, but wouldn't it be much better to see it on a graph?

    I emailed Peter Hoadley about whether his software does this, but he says that it doesn't, and neither does the software on There must be other people interested in studying this???

    Thanks for your help, Eugene
  2. most certainly does show past implied vol levels over the past 1 yr, 6mo, 3mo. IV indexcall, iv indexput,mean and option volume. just type in any underlying u wish,click go, and click the chart on the right next to the price chart. The orange line depicts implied vol over last 12months, and blue line shows historical vol. This is all free, mind you. They have other studies, but I find optionvue provides more clean data for my needs. Good luck!
  3. Thanks volatilitypimp!
    This really helps, eugene
  4. Hi Gene, since you mentioned "as a substitute for the underlying", you would want a slightly ITM or deeply ITM option. Note the effect of IV on the option price:

    ATM: largest nominal, or largest point change per point of IV
    OTM: largest %
    ITM: smallest nominal and smallest %

    A few notes:

    1. The deep ITM (DITM) option is the best "substitute" for the underlying and will be affected the least by IV changes. It will have the highest delta or (option price change)/(stock price change). The DITM will cost more than the slightly ITM but will return more due to higher delta.

    2. If IV is near historical lows as seen on the ivolatility charts(bottom 10% of range), then you might buy a slightly ITM or ATM option to lower your initial investment and capitalize on the forecasted increase in IV.

    3. The last week or so of an option also means lower price due to time decay and higher delta of a slightly ITM option. This means that a short, quick move near the end of the option's life yields higher return for lower investment, albeit at lower overall probability.

    4a: If Interest Rates increase: Calls more expensive, Puts cheaper
    4b: If Dividends increase: Calls cheaper, Puts more expensive
    5. As time passes, the time (t) to expiration decreases and the option price decreases (time decay).
    6. Plug in the current actual option price into the Hoadley free download and the Hoadly Excel sheet calculates the current IV based on the current option price. You can then forecast the option price with this IV and vary the IV to see the potential changes.
    7. Hoadley also lets you vary time to expiration and watch the delta/gamma/theta curves vary. This will give you the "sense" you need to understand options better.
    8. Use the Hoadley sheet to test out various spreads. A spread may make less return than a single, corectly predicted ATM option. The spread, however, is far safer [in the long run] and thus will allow you to place a larger position and/or utilize a larger percentage of your trading capital [over the long run]. In the end, it's all about probabilities and probabilities are only meaningful over the long run. It will be useful to paper-trade the spread and see how it compares to your single option trade, over the long run.

    Some excellent videos on options: