Valuable IV Rank thinkscript for TOS

Discussion in 'Options' started by smile, Dec 19, 2013.

  1. It will take me a few days to read and digest the information in that PDF. Having graduated with a bachelor’s degree in electrical engineering and physicals and a master’s degree in Industrial engineering, I am sure I will eventually figure out what is being stated. From empirical experience, regardless of price level, Implied Vol eventually settles down after a period of large price swings. Once price stabilizes, at whatever value, Implied Vol decrease relative to what it was. I do not know when, but I have witnessed it a few times this year in a dozen or so underlyings that I have traded. I’m sure the info in that PDF is enlightening and will be an added bonus to my knowledge base, but a quick glance at the material has me thinking that in order to put the info to use in a practical manner to actually trade with will be a daunting task and I'm currently not coding/programing any software. In the mean time I will continue using IVR as a trading indicator. It has worked so far and I haven’t blown myself up, but that would require me to go ape shit on the number of contracts that I sell and I don’t do that.

    For what it is worth, here is an interesting segment on mean reversion from tastytrade for those that don’t mind. The discussion starts about 3:25 minutes in to the segment and Tom Presten (TP) is on the show.

    http://www.tastytrade.com/tt/shows/the-skinny-on-options-math/episodes/131212_soom
     
    #31     Dec 20, 2013
  2. newwurldmn

    newwurldmn

    Mav is saying that goog at 800 will have a different vol than at 1000 a month later.
     
    #32     Dec 20, 2013
  3. TskTsk

    TskTsk

    Sure, that is the nature of inverse correlation after all... I looked at the paper and it seems they standardize strikes and the smile, but not spot to volatility... Bottom line I don't use the indicator myself but fail to see why it's useless if it's not standardized. Everything has context. The vega of a calendar spread is misleading because short-term vol of vol is higher than long term, don't mean the model is useless. But obviously if you (as someone else said) blindly buy vol at 49% percentile and sell it at 51% percentile you're not going to last long...
     
    #33     Dec 20, 2013
  4. NKVI>NH

    NKVI>NH

    would that behavior be indicative of a "less than ethical" person?
     
    #34     Dec 20, 2013
  5. I don't know. Ask one of your dozen aliases.
     
    #35     Dec 20, 2013
  6. newwurldmn

    newwurldmn

    Because vol is forward looking on the expected carry and the percentile is backward looking.

    In sept 2008 (an extreme example) all vols looked very rich by this standard. Today vols prob look cheap but would you buy and pay that theta?

    Doobs said it best: you have to have a reason why the market is wrong.

    Everyone and their brother has this signal and no one uses it as a standalone. It provides color but in the context of a bigger picture.
     
    #36     Dec 20, 2013
  7. its a great tool to scan underlying s and put things into context. Just gotta use common sense. 50 IV percentile on BIDU isnt the same as 50 IV percentile on SPY :D
     
    #37     Dec 20, 2013
  8. Dolemite

    Dolemite

    Where on the option curve is this IV %ile being calculated? ATM? average of multiple strikes? Seems to me you would want to know the slope of the skew curve before you start selling strangles/iron condors just because of a high IV.
     
    #38     Dec 20, 2013
  9. panzerman

    panzerman

    Here is my question. The percentiles are based on a lookback period, a 1 year window I believe. Wouldn't it be better to use all available IV data available to create the percentiles, even if that meant a 30 year lookback?

    In other words, use the entire lifetime of the available options contract to create the percentile rank. In statistics, the more data, the more accurate and meaningful the results, correct?
     
    #39     Dec 20, 2013