IV/HV options ranking

[ssternlight]

Quote from cnms2:

If IV is in a high percentile of its past values there is no guarantee when and if it will drop.

If it follows a pattern, i.e. it is before the earnings report, the IV raised as it did before past earnings reports, and in the past it dropped immediately after the report was issued, still there is no guarantee if and when it will drop again.

You can play it, but better make sure you use stop losses and good money management.

I'm not saying that "a portfolio of straddle trades based on a screen for high relative IV would tend to lose money", I'm saying that if applied mechanically or randomly, in long run it should have zero expectancy (ignoring slippage and commissions), in my opinion.

IV is determined by the option's price, while HV is determined by the underlying's price action. The option's price is determined by the underlying's price (among others), but IV and HV don't correlate beyond chance.

Some might disagree, i.e. McMillan in his Bible.

Interesting,

It seems to me that this is what is being experimented with on one of RiskArb's threads here. I'll have to go back and read through it to see if I am missing some other criteria for the trades.

 

[volatilitypimp]

question for all you commodity traders. My software is showing a strong correlation between vol levels(both iv and hv) and price action in many commodities.

I'm not sure if it's an anomoly or the norm. If it's the latter, wouldn't it be easier to trade vol in commodities? can anyone point me in the direction of some literature?

 

[WD40]

http://www.interactivebrokers.com/optionsCommentary/index.php?ib_entity=llc


http://platinum.optionetics.com/cgi-bin/oamerge/stktables/oarank2yr

 

[volatilitypimp]

Does anybody else here think that being long premium in RIMM looks attractive?

 

[cnms2]

I don't follow RIMM, so for whatever it's worth:
-Friday 3/19 close: $86.75
-earnings 4/6
-IV 45% recently 55-60%, 1yr 38-70%
   -IV increase expected in the next three weeks
-TA: $80-83 long term resistance / support (also the 2001 high); all time high $95 Nov-Dec 04 (discounting one day higher spike ...)
   -Oct 05 reversal point to uptrend
   -last Thursday RIMM started a short term retracement (shooting star, volume, trend, divergences)
-fundamentals: no clue
-conclusion:
   -currently not a high probability long entry point: wait for an uptrend confirmation at $80-83
   -as IV seems headed up pre-earnings, there might not be a good premium buying opportunity before 4/6

Quote from volatilitypimp:

Does anybody else here think that being long premium in RIMM looks attractive?

 

[ozzy]

SLB CS ~ 127-130 (range). Keep an eye on it. Also on the keep an eye out for CS's on the indexes we should put a short term high (possibly longer term) this week.

 

[cnms2]

What does CS stand for?

SLB looks bullish, but I'd expect a short term small pull back ($121-122 level; strong support around $117), then wait for a bullish confirmation for a long entry. Its IV=31% is in its 1 year 50-60% percentile.

Quote from ozzy:

SLB CS ~ 127-130 (range). Keep an eye on it. Also on the keep an eye out for CS's on the indexes we should put a short term high (possibly longer term) this week.

 

[ra1]

Hi cnms2,
When you talk of iv which iv do you mean?
For instance there is the iv of the specific option or the average iv of all the options or the iv of the atm options or the average iv of all the options that have 30 to 60 days (or 60 to 90 days, etc.) to expiry and so on.
Cheers
ra1

cnms2 wrote:

"If IV is in a high percentile of its past values there is no guarantee when and if it will drop"
and
"-IV 45% recently 55-60%, 1yr 38-70%
-IV increase expected in the next three weeks"

 

[cnms2]

To approximate the percentile I use the 3mo/6mo/1yr IV charts provided by my broker. I don't recall exactly the formula used for this calculation, but it favors near the money, close expiration options. When I refer to a specific option's IV I use the value calculated from its mid point between bid and ask.

Quote from ra1:

Hi cnms2,
When you talk of iv which iv do you mean?
For instance there is the iv of the specific option or the average iv of all the options or the iv of the atm options or the average iv of all the options that have 30 to 60 days (or 60 to 90 days, etc.) to expiry and so on.
Cheers
ra1

cnms2 wrote:

"If IV is in a high percentile of its past values there is no guarantee when and if it will drop"
and
"-IV 45% recently 55-60%, 1yr 38-70%
-IV increase expected in the next three weeks"

 

[ozzy]

CS = Credit Spread.

Quote from cnms2:

What does CS stand for?

SLB looks bullish, but I'd expect a short term small pull back ($121-122 level; strong support around $117), then wait for a bullish confirmation for a long entry. Its IV=31% is in its 1 year 50-60% percentile.