Calculating The Greeks

Quote from stoic:

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...?
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If you already have a fair value in mind, you don't care about market prices. What you care is realized volatility until maturity. That way you 'd price your option using your own volatility forecast.

If market prices are meaningful then you're try to get a market opportunity. That way, you'd better quote your option using market volatility.

Masteratwork
 
Quote from donnap:


Personally, I wouldn't use HV for any option calcs - HV and IV are measured very differently. [/B]
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At least one person answered.
 
Quote from stoic:

At least one person answered.
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Lol. Dude, you were asking for trading tips, without explaining what you were trying to do. I thought pointing out your broken model, and subsequently seeing the correct data, would help you focus your thoughts a bit.

I almost always use the market place IV's for greeks. There are a few specific situational exceptions. For instance, around earnings it is helpful to run vols where they are expected to go. The livolpro guy showed a good example of that using INTC numbers. Likewise, after a PM earnings, but before the market opens, you will need to estimate vols so as to gamma scalp, or whatever. Also, a trader with a multi month perspective, rather than a intraday perspective like myself, might want to ignore the ebs and flows of the IV vols and focus on HV more than myself.
 
Quote from Jerkstore:

Lol. Dude, you were asking for trading tips, without explaining what you were trying to do. I thought pointing out your broken model, and subsequently seeing the correct data, would help you focus your thoughts a bit.

I almost always use the market place IV's for greeks. There are a few specific situational exceptions. For instance, around earnings it is helpful to run vols where they are expected to go. The livolpro guy showed a good example of that using INTC numbers. Likewise, after a PM earnings, but before the market opens, you will need to estimate vols so as to gamma scalp, or whatever. Also, a trader with a multi month perspective, rather than a intraday perspective like myself, might want to ignore the ebs and flows of the IV vols and focus on HV more than myself.
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I was not asking for trading tips.

All I was asking was for a those that use the Greeks for what ever...

WHAT is your preference. HV or IV.

Its that simple, period.
 
I'm still baffled. Help me by explaining why one would want to use Historical in your greek equation?

Vol is expressed in price, so if you're trying to use HV vs IV to determine the price of an option you're really just saying that the option is over or under priced according to the most recent moves of the market - which really should be in relation to standard dev. expectations, which are the result of imp.vol.

I suppose you could use HV as a sort of smoothing for your price expectations which would basically make your price expectation similar to a moving average. Yet, as far as running a complex book of options, you'll already have a vol expectation and awareness of its return to mean, so I don't really understand what HV is offering. If you're looking for some sort of HV or IV cross over we already know the long term trends and it would be nuts to take a short term opposition to this cross anyhow.
 
Quote from RedEyeFly:

I'm still baffled. Help me by explaining why one would want to use Historical in your greek equation?

Vol is expressed in price, so if you're trying to use HV vs IV to determine the price of an option you're really just saying that the option is over or under priced according to the most recent moves of the market - which really should be in relation to standard dev. expectations, which are the result of imp.vol.

I suppose you could use HV as a sort of smoothing for your price expectations which would basically make your price expectation similar to a moving average. Yet, as far as running a complex book of options, you'll already have a vol expectation and awareness of its return to mean, so I don't really understand what HV is offering. If you're looking for some sort of HV or IV cross over we already know the long term trends and it would be nuts to take a short term opposition to this cross anyhow.
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I would ask that one read the question!
Most option pricing models that I have found use the HV in the calculations for the Greeks, I personally would prefer to use the IV.

All I want to know was what others would prefer.

Thats it end of question.
 
Quote from RedEyeFly:

I'm still baffled. Help me by explaining why one would want to use Historical in your greek equation?

Vol is expressed in price, so if you're trying to use HV vs IV to determine the price of an option you're really just saying that the option is over or under priced according to the most recent moves of the market - which really should be in relation to standard dev. expectations, which are the result of imp.vol.

I suppose you could use HV as a sort of smoothing for your price expectations which would basically make your price expectation similar to a moving average. Yet, as far as running a complex book of options, you'll already have a vol expectation and awareness of its return to mean, so I don't really understand what HV is offering. If you're looking for some sort of HV or IV cross over we already know the long term trends and it would be nuts to take a short term opposition to this cross anyhow.
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The purpose of massaging the vols would be to adust your hedge ratios, gamma scalping methods, and to show a low tech trader a trade exit point.

To the OP: Use IV for greeks.
 
Quote from stoic:

I would ask that one read the question!
Most option pricing models that I have found use the HV in the calculations for the Greeks, I personally would prefer to use the IV.

All I want to know was what others would prefer.

Thats it end of question.
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There's two possibilities here:

Someone is either using a risk management method that I have never seen, in which case I would love to see exactly what they are doing...OR you are full of shit.

Either way, could you tell me where you are seeing these pricing models? I would like to investigate.
 
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