How to "compute" option prices from daily values

Look, you guys need to understand how VIX is computed... it's an index comprised of a few options expirations of SPX, and several strikes around the ATM I think.

So, the ATM SPX option with 30 days maturity is not 100% linked to VIX. And definately the 20% OTM SPX put is totally linked to VIX. The IV of that put can go lower, while VIX rises for instance.

To compute the correct prices, you first need the ATM IV of that specific options series. Then add skewness.
 
Derrenoption said:
I use the Midpoint between Bid-Ask as the option price to determine the IV for each option. But I don't use that as a constant IV for the duration of that day. I thought of that to that the high and low IV is not the same which would be the entire problem.
As you say, it seems that we need the appropriate Volatility index for the symbol in question where we can correctly extract the IV as precise as possible. The thing I think of here is in the case with all 40 symbols to have a volatility index for each will be a big job. Also thinking of that a volatility index perheps doesn't exist for all those symbols. (Those symbols should be the most liquied for options).

At the moment I am a little stuck how to do with all those symbols (scratching my head)
If I can find a way, I would be happy to give a solution to you on that.
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Ah! We are in sync! Good to know! (I'm considering just purchasing the data for myself.)
 
JackRab said:
Look, you guys need to understand how VIX is computed... it's an index comprised of a few options expirations of SPX, and several strikes around the ATM I think.

So, the ATM SPX option with 30 days maturity is not 100% linked to VIX. And definately the 20% OTM SPX put is totally linked to VIX. The IV of that put can go lower, while VIX rises for instance.

To compute the correct prices, you first need the ATM IV of that specific options series. Then add skewness.
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JackRab: Vix is calculated per the CBOE VIX White paper. There is NO guessing! Not a few expirations, typically 2 and apparently 1 when DTE is exactly 30 (however, doubt that is the case for greater than a 1 minute interval)

We are referencing VIX primarily since that data is available and accessible! (along with underlying OHLC). We are merely making best use of data available. If you observe behavior of the individual option IV they are loosely correlated, and you do not find the IV increasing with one and decreasing with another simultaneously unless some event is disrupting (at least I have not observed this with SPX options).
Can you point to a specific example of "The IV of that put can go lower, while VIX rises for instance."? If you are correct, then I'd appreciate you helping me to observe it for myself! -- If this occurred at some historic date/time, let me know & I will dig it back out. This is very important to me.
 
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stepandfetchit said:
JackRab: Vix is calculated per the CBOE VIX White paper. There is NO guessing! Not a few expirations, typically 2 and apparently 1 when DTE is exactly 30 (however, doubt that is the case for greater than a 1 minute interval)
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Yeah I know, I just didn't want to spend the time to look up the details. Off course there's no guessing.

But you can't use VIX for full computation of options prices... it's the other way around... VIX is based on the options prices/IV's.
 
JackRab said:
Yeah I know, I just didn't want to spend the time to look up the details. Off course there's no guessing.

But you can't use VIX for full computation of options prices... it's the other way around... VIX is based on the options prices/IV's.
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I edited my prior response. Can you re-read, and comment?
 
Regarding: "But you can't use VIX for full computation of options prices... it's the other way around... VIX is based on the options prices/IV's." We agree!
 
stepandfetchit said:
Can you point to a specific example of "The IV of that put can go lower, while VIX rises for instance."? If you are correct, then I'd appreciate you helping me to observe it for myself! -- If this occurred at some historic date/time, let me know & I will dig it back out. This is very important to me.
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So since VIX is calculated across several strikes... it incorporates skew. With skew, the vols in ATM and OTM calls can drop, but OTM puts can rise... so skew increases.. in that case, you could see put IV's go up, but VIX lower. So also vice versa can happen... though in practice I've seen put IV up and VIX lower more frequently.

Also, say we're expecting not a lot of movement, but we still want some kind of protection... this means exactly that example. ATM vols drop and wings are getting more expensive. This usually happens over long holidays like in december with Christmas etc.
The reason for this is theta capture. ATM has more theta than OTM, so you would buy the BFLY (+wings -body).
 
Can you please point to a specific example! One point in time where VIX decreased simultaneously with the increase of a specific PUT option IV! I need to observe it! I have access to historic data, so if you can pinpoint the time/date/security/strike I will be able to observe it.
 
If anyone is able to specifically identify a single instance where an SPX PUT option IV moved in an opposite direction to VIX when not caused by some Odd event or lack of liquidity of that PUT option, I would appreciate you contact me with the details where I can investigate.
In the mean-time, I may need to fade comments from one of our members. I am unaware of SKEW changes occurring instantaneously to cause this (perhaps it does, but I need to see for myself).
 
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