Accuracy of IV for Expected Move (for CALLS only)

[stepandfetchit]

That's one.

 

[JackRab]

IMHO: Observations of SPX IV surface over time do not support the notion that skew is a common error component of VIX. Sharp VIX events do have this impact you reference, however, the occurrence is seldom excessive (2018 Feb 5th & 6th during portions of the day did show significant Skew influence). Stated a bit differently, for "government work", using VIX instead of "skew adjusted" volatility for a 30 Day SPX IV seems adequate for most tasks, especially for the one posted here. Once you discount time effects and underlying price movements, the Vol surface is amazingly smooth and uniform across all strikes and time.

You can't use it for expected move... since VIX is always higher than am ATM IV, which is more suitable for something that relates to research to expectancy... since ATM IV determines the straddle values...

As a risk measure, VIX would be better suited I guess. Although that also has it's flaws... since it will have a more or less fixed channel it moves in, especially the low.

 

[Quiet1]

Hi



please, is that correct ?



What is the cost of delta hedging? interest, comissions, dividends. The cost of delta hedge changes along one hour? iv does.

I mean if you are short gamma you should expect your delta-hedges to lose money on average. The amount you should expect to lose is the premium established when the option(s) were sold. You will need to adjust your delta-hedges as the underlying moves. Each adjustment would normally lock in a loss if short gamma. Obviously not in every case but as a general rule. The inverse is true for long gamma.