Analysis based on IV Ratio (Volatility Skew)

[gowthamn]

Hi,
I see that my trade performance is heavily related to the IV ratio between 50 delta and 25 delta (50d / 25d).
Best time to enter is when the ratio is high and exit when the ratio is low. Are there any indicators or analysis on how to predict how the ratio might increase or decrease?

 

[xandman]

I think you just discovered one.

 

[guru]

Hi,
I see that my trade performance is heavily related to the IV ratio between 50 delta and 25 delta (50d / 25d).
Best time to enter is when the ratio is high and exit when the ratio is low. Are there any indicators or analysis on how to predict how the ratio might increase or decrease?

Various software products and websites use IV rank to determine low/high IV range.

 

[gowthamn]

@VolSkewTrader , are you aware of any such methods?

 

[VolSkewTrader]

@VolSkewTrader , are you aware of any such methods?

I would recommend using a 3rd party data provider if you aren't tracking/recording the IV data yourself. A vendor like ORATS, a sponsor on here, would be a good place to start.

Matt, you can thank me later with a 20% referral fee.

 

[traider]

Hi,
I see that my trade performance is heavily related to the IV ratio between 50 delta and 25 delta (50d / 25d).
Best time to enter is when the ratio is high and exit when the ratio is low. Are there any indicators or analysis on how to predict how the ratio might increase or decrease?

What is the expiry for the options

 

[.sigma]

Hi,
I see that my trade performance is heavily related to the IV ratio between 50 delta and 25 delta (50d / 25d).
Best time to enter is when the ratio is high and exit when the ratio is low. Are there any indicators or analysis on how to predict how the ratio might increase or decrease?

Hey gowthamn, when you say the "IV ratio between 50 delta and 25 delta" you mean to divide the IV% of the 50Delta calls/puts by the 25Delta call/puts? And whatever numeric this is determines your performance of profitability? Can you explain more on this?

 

[gowthamn]

Hey gowthamn, when you say the "IV ratio between 50 delta and 25 delta" you mean to divide the IV% of the 50Delta calls/puts by the 25Delta call/puts? And whatever numeric this is determines your performance of profitability? Can you explain more on this?

It's IV% of 50delta calls / 25 Delta calls.

 

[traider]

It's IV% of 50delta calls / 25 Delta calls.

What length do you consider for expiry

 

[Matt_ORATS]

Hi,
I see that my trade performance is heavily related to the IV ratio between 50 delta and 25 delta (50d / 25d).
Best time to enter is when the ratio is high and exit when the ratio is low. Are there any indicators or analysis on how to predict how the ratio might increase or decrease?

Hi Gowtham
ORATS has historical relationships for all US equity options back to 2007 along with many other metrics.
We forecast short-term (30 day) and long-term (2 year) slope, which is roughly what you are describing.
You can set up an analysis to predict the relationship yourself.
Here is a chart of the 30 day IV 25 delta / 75 delta (we have 5, 25, 50, 75 and 95 deltas available):

We describe this relationship as Slope and for ease of communication, turn it positive

described here in the API docs: https://docs.orats.io/data-api-guide/core-research.html#implied-volatility-surface

Here's the Slope with the Slope Forecast and the ratio. When the ratio is high, we forecast slope to fall:

Currently, the slope/forecast is near 1 meaning the slope is near our forecast.