Do we need a new greek?

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wxytrader

Anybody have or know of a way to calculate the future volatility of an option after a change in stock price?

Vega measures the amount price will change with a 1% move of IV.
Delta measures the amount price will change based on a $1 move of the stock price.
Gamma measures the amount delta will change after a $1 move of the stock price.
Theta measures the amount price will decay every day up to expiry.
??? measures the amount IV will change after a $1 move of the stock price?


Can we find the value of future IV using the black Scholes model for future prices, but instead find for future IV?

Using the iterative approach we can use Black Scholes to find the current IV of an option by changing IV until it matches current price...but how to find future IV at a future price?
 
If you are looking for a second derivative, then vomma could be it. Vomma calculates the percentage change of vega for each percentage change in implied volatility. There's a third derivative too.
 
destriero said:
lol nobody (here) is applying ultima in listed eq-vol and it's not what you're looking for.

No, ofc not. In index it's sticky strike less vol-corr.
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Yes I was following up about how it is still a derivative of vega (visa versa) so it will not work. I was reading about sticky strikes but they are strikes that do not change when volatility does. I will continue reading.

Can you elaborate on
destriero said:
In index it's sticky strike less vol-corr.
More...

My workaround right now is finding the avg volatility change with a price movement of an option and extrapolate from that the expected IV change for future movements. I guess you would have to adjust for the IV skew increasing/decreasing as you get closer to or farther from ITM, and the difference for puts and calls.

As it is, if you are trying to calculate the future price of an option (P/L), you are using a lagging IV with the Black-Scholes method.

https://www.coremont.com/news-insights/equity-implied-volatility-dynamics/
 
newwurldmn said:
I thought options were a waste of time.
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They are imo! The premium is almost always insurmountable. This is why people prefer 0-3 DTE's because you level the playing field when it comes to directional trading...if you are right you make $...with longer DTE you can be directionally right all the time and still lose $ because it didn't move far enough in time. Rolling out won't help...sure you will buy more time but you are in the same predicament...only you paid more to be there. You can look at leaps but you still need the price to move in a timely fashion.
 
Sticky delta is not representative. Historically, up/out strikes were dramatically undervalued (high P/C RR figure). (Near-strike, limited to >30D) skews were upside last week, so sticky delta is more representative. Obviously, SS and SD converge as skew flattens.

I model a series of skew locks across strikes on the Friday LTD series out to exp (Sat). If the ATM skew lock expiration PNL is modeled as a gain the skew is exploitable, and it gives me a PNL figure (theta / gamma analogy; theta priced in dollars, gamma priced in D). If not (PNL below x), then you're paying too much for wings. As it is, I ignore it when taking direction as I am typically in ATM flies and switch-flies which are not skew-sensitive.

None of this matters. You're looking for model output to tell you where future implieds are going to be which is foolish. Your Ultima is valued in pennies on your option book.
 
destriero said:
Sticky delta is not representative. Historically, up/out strikes were dramatically undervalued (high P/C RR figure). (Near-strike, limited to >30D) skews were upside last week, so sticky delta is more representative. Obviously, SS and SD converge as skew flattens.

I model a series of skew locks across strikes on the Friday LTD series out to exp (Sat). If the ATM skew lock expiration PNL is modeled as a gain the skew is exploitable, and it gives me a PNL figure (theta / gamma analogy; theta priced in dollars, gamma priced in D). If not (PNL below x), then you're paying too much for wings. As it is, I ignore it when taking direction as I am typically in ATM flies and switch-flies which are not skew-sensitive.

None of this matters. You're looking for model output to tell you where future implieds are going to be which is foolish. Your Ultima is valued in pennies on your option book.
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So is that basically the same thing I just described only more technical? When I first got into stocks I didn't even realize they had indicators so I tracked a bunch of prices on a spread sheet and started averaging them out. Yes I had spent time creating some crude form of a moving average lol.

There is an old adage that says "sometimes you can be too smart to make money in stocks."

So at least I don't have to worry about that.
 
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wxytrader said:
So is that basically the same thing I just described only more technical?

My workaround right now is finding the avg volatility change with a price movement of an option and extrapolate from that the expected IV change for future movements.
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lol this? You're serious? I don't even think you believe what you wrote and sure AF you're not doing this.

Just stop. Understand that you don't know anything and just short vol with a directional-bias. At least your hit rate will improve.
 
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