Atr & Iv

[Prevail]

I guess I'm the dissenter. look at a long term chart of the sp, vxo and 5-10 day atr. atr is clearly highly correlated with u.s. equities and iv.

 

[cdowis]

Here is how I see it:

ATR is one day movement based on past price movement.

The one day standard deviation is based on IV which is the market's assessment of future one day movement.

Similar to to the relationship between HV and IV, as it relates to one day's price movement.

Is that correct?

 

[MTE]

Quote from Prevail:

I guess I'm the dissenter. look at a long term chart of the sp, vxo and 5-10 day atr. atr is clearly highly correlated with u.s. equities and iv.

Well, of course, IV correlates with ATR to some extent, during most of the time. After all, ATR is just another measure of HV. However, the point is that there is no mathematical relationship between HV/ATR and IV.

 

[Prevail]

you may be right, depending on what you are trying to accomplish. often you can take 3.2 times the atr for a rough calc of the 30 day 1 sigma and double it for straddle BE points.

 

[IV_Trader]

Quote from MTE:

Well, of course, IV correlates with ATR to some extent, during most of the time. After all, ATR is just another measure of HV. However, the point is that there is no mathematical relationship between HV/ATR and IV.

if you break HV into regular HV and event HV , you will get pretty good relationship with IV and event IV. I am referring to equities vols.

 

[MTE]

Quote from IV_Trader:

if you break HV into regular HV and event HV , you will get pretty good relationship with IV and event IV. I am referring to equities vols.

I agree. Once again I'm not saying there's no correlation, just that there's no direct mathematical relationship between HV and IV.