Calculating The Greeks

[stoic]

I would like to get a consensus on calculating the Greeks.

Delta, Gamma, Vega, Theta, and Rho all use Volatility as a variable in the formula.

The question is: What are your preferences, input Historical Volatility, or Implied Volatility?

 

[Martinghoul]

Do you want a set of historical or market-implied Greeks?

I am only half-kidding...

 

[RedEyeFly]

Vols come out last so whatever numbers you input, that will be your output.

 

[stoic]

Quote from Martinghoul:

Do you want a set of historical or market-implied Greeks?

I am only half-kidding...

Example: DuPont de Nemours (DD) Historical Volatility is 32.50%
The Implied Volatility on the July ATM 38s is 18.94%

Two distinct values.
So the question: What is YOUR preference for the input to calculate the rest of the Greeks, Historical Volatility, or Implied Volatility.

 

[Martinghoul]

Let me ask you this, stoic... Do you believe mkt prices are meaningful and, as a consequence, mark-to-mkt your positions?

 

[stoic]

Quote from Martinghoul:

Let me ask you this, stoic... Do you believe mkt prices are meaningful and, as a consequence, mark-to-mkt your positions?

Yes Market prices are meaningful, and my positions are marked-to-market every busines day by the broker.

So.....that relates to my question......how...?

 

[Jerkstore]

Quote from stoic:

Example: DuPont de Nemours (DD) Historical Volatility is 32.50%
The Implied Volatility on the July ATM 38s is 18.94%

Two distinct values.
So the question: What is YOUR preference for the input to calculate the rest of the Greeks, Historical Volatility, or Implied Volatility.

There are multiple things wrong with this.

First, the jult ATM IV is closer to 25 than 19. You should check your calculations.

Second, when dealing with HV, sampling period is vital. I see the 10, 20, 30, and 60 day HV's as 16%, 20%, 17%, and 21% respectively. You must be using a significantly longer timeframe. If you look at the 1 year HV you get a 46%.

 

[RedEyeFly]

oh dear

 

[donnap]

Quote from stoic:

I would like to get a consensus on calculating the Greeks.

Delta, Gamma, Vega, Theta, and Rho all use Volatility as a variable in the formula.

The question is: What are your preferences, input Historical Volatility, or Implied Volatility?

You input the option market price to calculate the greeks and IV,

Personally, I wouldn't use HV for any option calcs - HV and IV are measured very differently.

You may vary vol in your calcs for a hypothetical price, sometimes used to examine how changes in IV might affect a trade.

 

[spindr0]

Quote from stoic:

Example: DuPont de Nemours (DD) Historical Volatility is 32.50%
The Implied Volatility on the July ATM 38s is 18.94%

Number is low. Did you omit the dividend in IV calc?