How do you value vol?

[gmal]

Who is SO?

Snake Oil (steady options)

 

[ironchef]

I model using ONE software - this may be laughable to someone who likes to wrestle with differential calculus, but it's pragmatic.

Happy to know there is someone else who doesn't know fancy financial math but is still very profitable.

 

[ffs1001]

SO = Steady Options - google it, it's a subscription service. I'd rather not mention it any more as I wouldn't want to be seen to be promoting it.

 

[Same Lazy Element]

I just want to know how useful the mathematical analysis is in terms of $$$. And where. I await the day when someone on ET gives a real-life trade example where quant analysis improved the profit figure.

I think you are making a false juxtaposition. Most successful traders make money by combining some form of numerical analysis with common sense. The weights on these two components vary and sophistication of each of these components varies as well. Simple statistics, linear regression, standard modes and some common sense are more than sufficient in most cases.

It does, however, help to understand what the models are doing - to use your car analogy, race car drivers know much more about their cars technology than an average soccer mom.

 

[ironchef]

It does, however, help to understand what the models are doing

Not the math but the underlying assumptions used to construct the model.

 

[TheBigShort]

I'm not questioning the advanced quant theorams - I just want to know how useful the mathematical analysis is in terms of $$$. And where. I await the day when someone on ET gives a real-life trade example where quant analysis improved the profit figure.

Since SO and yourself buy options leading up into the event. Would you mind posting a current stock's event vol you have a view on? And your reasoning. That way I can do my analysis on it and we can compare what eventually ends up happening. It will make things more exciting. Also, it will be a good indication that I should probably stop trading if Kim Klaiman can predict vol better than I can.

 

[ffs1001]

Since SO and yourself buy options leading up into the event. Would you mind posting a current stock's event vol you have a view on? And your reasoning. That way I can do my analysis on it and we can compare what eventually ends up happening. It will make things more exciting.

Good idea. Let's do it in April, when earnings start again - I'll pick a real-life trade that I opened and give you the details, with a screenshot of the trade.

Also, it will be a good indication that I should probably stop trading if Kim Klaiman can predict vol better than I can.

You can get more than an indication - you can have the exact answer to this question right now - just go to the Performance page of their website, and see if your performance over the years has matched or exceeded the SO returns.

 

[.sigma]

I dont do anything fancy. I get a data set and create a dependent variable and independent variables. I then try to use simple (mostly linear) models to help me predict the dependent variable. The edge comes from good independent variables and good transformations. Once I get my coefficients I dont change them. Usually because I'm using like 10 years of data

TBS, okay lets say you calculate the above statement, once you get a signal for the dependent variable then what?

What I'm trying to ask is, is this in real time? Or are you hunting for discrepancies in spot-vol, and implieds over the weekend?

Idk if I have ADD or if I'm consuming tooo much info, but I'm not retaining a lot of shit, for example I've read Sinclairs books yet still don't know whats going on really, of course my understanding of vol is getting better but I sure am a slow learner (I think).

TBS, whats your thoughts on using HAR-RV model instead of something like GARCH? I've read that HAR-RV uses vol of intraday returns (5-10 min), while GARCH relies on daily vol which causes more noise than signal? Please correct me if wrong. HAR-RV reproduces empirical returns more accurately?

 

[.sigma]

Solely looking at ATM IVOL you can view it in a few ways. I usually look at vol in either absolute terms or relative terms.

Relative:
For example you might use SPY IVOL to help you price an illiquid security. You can also compare SPY IVOL with XYZ IVOL to find rich/cheap trades. .

TBS, When comparing SPY IV to find rich/cheap trades, what number are we talking about here? For example, are you using SPY overall implied volatility which is under "Todays Option Statistics" on thinkorswim? Or are you using the FMATM? I'm assuming you'll use the same number to compare XYZ?

What do you mean by using SPY IV to price an illiquid security? I have no idea what this means but very interested.

 

[.sigma]

Bump.