Any other users of iVolatility's IVM numbers?

H

heech

Hi,

Just curious if there are any users of iVolatility's IVM numbers. I've just started using them for back-testing, and also some basic screening calculations.

I'd like to exchange notes (and a few doubts) with anyone out there who has practical experience with this.

For those unfamiliar with it, it's basically like the VIX, but for individual stocks. They basically average out ATM options of different expirations, and come up with a single number that represents *the* implied volatility for the stock.
 
Quote from heech:

Hi,

Just curious if there are any users of iVolatility's IVM numbers. I've just started using them for back-testing, and also some basic screening calculations.

I'd like to exchange notes (and a few doubts) with anyone out there who has practical experience with this.

For those unfamiliar with it, it's basically like the VIX, but for individual stocks. They basically average out ATM options of different expirations, and come up with a single number that represents *the* implied volatility for the stock.
More...

Before you do anything, check and make sure their IVM numbers actually make some sense, actually correlate to reality. Ivolatility has some good stuff, but also an amazing tendency to publish information on its site that is not only wrong, but so wildly, totally off the mark that it just leaves you shaking your head in disbelief.

Recently I pointed out to them that they were making a fundamental error in how they calculate Eurodollar IV, causing them to claim it was about 1% when in fact it was about 60%. I offered to explain to them how to do it correctly. They admitted they were doing it incorrectly and told me they knew how to do it correctly - but they continued to publish the false IV for months (they claim it's fixed now). They also have an "advanced ranker" that supposedly screens for stocks that have the steepest upside skew and the steepest downside skew. Except it doesn't. They happily publish the list of such stocks and are equally happy to charge you for the service but when challenged admitted to me that it doesn't work. Buyer beware!
 
Well, that's actually *exactly* why I'm asking...

I had started to lean on them pretty heavily on back-testing... downloaded 2 years worth of weekly IVM for about 400 symbols, which is a pretty significant cost.

But was pretty startled to see some ridiculous numbers as I started to use it in practice. So, now I'm wondering if I should just throw out the whole pile.

Here's two quick examples that I'm asking them for explanation on.

TSL, SHLD.

TSL June ATM call options are listed with an IV of approximately 103%... but the "IVM call 30 days" number that they generate is 125%! How does that make any sense?

SHLD June ATM call options have an IV of approx 70%, but their "IVM call 30 days" is 84%.

The discrepancy becomes especially noticeable when you compare it to the puts on the same expiration. In the real world, the calls/puts have VASTLY different IVs (difference of approximately 30%)... but in the ivolatility world, they have almost identical IVs. That's what caught my attention in the first place.

One of their reps has promised to "run the numbers" for me, to explain how they ended up with these numbers. But with your feedback, it looks like this isn't just an accident, but standard operating procedure for them.

Someone needs to put them out of business until they get it straight. I guess I'm done paying for them.

Anyone else know of an *automated* mechanism for pulling current ATM option volatilities into an Excel spreadsheet? I assume IB's API allows that?
 
Quote from dmo:

Ivolatility has ... an amazing tendency to publish information on its site that is not only wrong, but so wildly, totally off the mark that it just leaves you shaking your head in disbelief.

...an "advanced ranker" that supposedly screens for ... Except it doesn't.
More...
That matches my experiene exactly.

Good concept. Terrible executoin.
 
So, short of paying $2k for buying a few years worth of EOD option prices, and then parsing it all to calculate my own IV numbers...

... does anyone have any solutions for a *working* version of what iVolatility provides, especially for historical data?
 
Quote from heech:

So, short of paying $2k for buying a few years worth of EOD option prices, and then parsing it all to calculate my own IV numbers...

... does anyone have any solutions for a *working* version of what iVolatility provides, especially for historical data?
More...

To create a working version of any such thing, I use the Hoadley library of option functions for Excel. For $100 you can't go wrong. It includes a way of bringing price data into Excel spreadsheets (from IB among other data providers), and is much easier to work with than DDE.

I've never been able to buy "massaged" or "crunched" IV info that works for me. It's so much easier and better to create a spreadsheet that does it and displays it in just the way you want. The option add-in functions make that easy to do.

I also sometimes use a set of Excel add-in functions called XLQ. It might work with a data provider that makes historic price data available, if Hoadley does not. http://www.qmatix.com/XLQ.htm
 
dmo,

Just taking a quick look at the functions provided:

http://www.hoadley.net/options/develtoolsaddin.htm

I don't see anything that would approximate 30-day forward IVM on any arbitrary day, based on available option chain prices... do you know if it has that capability?

Gosh darn ivolatility and their inability to deliver what I consider the perfect solution...
 
Quote from heech:

dmo,

Just taking a quick look at the functions provided:

http://www.hoadley.net/options/develtoolsaddin.htm

I don't see anything that would approximate 30-day forward IVM on any arbitrary day, based on available option chain prices... do you know if it has that capability?

Gosh darn ivolatility and their inability to deliver what I consider the perfect solution...
More...

Sorry Heech, I wouldn't know an IVM if I tripped over one. What does IVM stand for? Whatever it is, there must be a formula for it, and it should be something you can crunch in Excel, n'est-ce pas?
 
Quote from dmo:

Sorry Heech, I wouldn't know an IVM if I tripped over one. What does IVM stand for? Whatever it is, there must be a formula for it, and it should be something you can crunch in Excel, n'est-ce pas?
More...
Oh sorry, thought you were familiar with that term/number.

It's just a calculated number representing "implied volatility" for any particular stock, for a hypothetical option expiring 30 days in the future. They approximate it by taking actual IV values from a strip of at/near the money options for the next two months, massage the numbers to normalize to 30 days.

Yes, easy enough to calculate... it's just a hassle getting the option chain numbers in there. (I'd have to figure out which are the ATM options, calculate the IV, adjust for expiration date...)

It's not hard getting it for current data. IB provides a similar number. But for backtesting... it's just a hassle to calculate myself.
 
Here's ivolatility's answer:


"If the calculation of IVx gives a big spread between the call and put IVx then we consider that such values are unreliable and filter out some options with far-from-mean IVs. Instead we use other options with same expiration date. Unfortunately I cannot tell you the concrete rules because it’s our proprietary methodology."
 
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