You can compare with the OTC market which obviously is the highest volume. Free Bloomberg quotes can be obtained: ATM 1M: http://www.bloomberg.com/quote/eurUSDV1M:IND/chart 25D RR: http://www.bloomberg.com/quote/eurUSD25r1M:IND/chart and so on, although you need to do some work to convert from delta to strike, and extract IV values from RR and BF quotes Another source with quotes and interesting tools from ISE: http://www.fxoptions.com/site/ChartingTool.aspx
When delta hedging I use 0.5*gamma*S^2 which gives loss per rehedge. Solve for risk tolerance. Sometimes I use 1sd move (dont remember exact formula) as rehedge points. I buy both options and underlyer to rehedge (it varies). The primary concern when determining wheter a premium is good or not is 30-day forward IV compared to historical vol. Optimally the two graphs should be far apart. IMO. sure there are other ways to determine it. it depends what you're looking to proft of.
let me ask a few questions so i can get what your saying... 1.. "0.5*gamma*S^2" whats S^2 is the * a multiplication sign? is this an equation.. .50 times the gamma times stock squared? i mean i know i sound retarted but haha idk 2..."you buy options to hedge" like itm? say itm calls to hedge otm calls sold? 3.. 30-day foward IV..... is that a garch forcasting thing? or where are you getting a forward implied vol number from? 4.. what other ways are there to determine optimal times to sell premium and hedge?
CDcaveman you still around? I’ve had this same exact idea long calls and puts using the PHLX dollar index options. Reason being as I can position size the option cost and not use a stop the option is essentially the stop. Of course Greeks come into play. Leverage seems to be large enough. Theta may be a killer if the trade takes too long to play out. Obviously these are better for longer term (daily) because of transaction costs So did you ever continue to trade this concept using the options? If so how did it work? I’m asking because I’m giving it a go trading 1 contract at a time right now to test the waters. I don’t like the low open interest but the spreads for options aren’t horrid either, and there seems to be a decent amount of offered and asked by the makers at any given time. Any thoughts or experience in these would be greatly appreciated. Thanks