Thanks a lot!
Options: Calculating the 1 Sigma Expected Range for SPX
- Thread starter ondafringe
- Start date
If you have a good ATM IV value, you can use this for the 1 sigma move down (EMDwnp) and up (EMUpp).
# Where V is the ATM IV, you would set NumSTDs to 1, TimeinDays is a real), is likely close enough for very short durations where you can ignore interest rates.
EMDwnp=math.exp(-V*NumSTDs*((TimeinDays/365.25)**(.5)))-1
EMUpp=math.exp(V*NumSTDs*((TimeinDays/365.25)**(.5)))-1
Multiply each by the SPOT price to convert from % to value!
# Where V is the ATM IV, you would set NumSTDs to 1, TimeinDays is a real), is likely close enough for very short durations where you can ignore interest rates.
EMDwnp=math.exp(-V*NumSTDs*((TimeinDays/365.25)**(.5)))-1
EMUpp=math.exp(V*NumSTDs*((TimeinDays/365.25)**(.5)))-1
Multiply each by the SPOT price to convert from % to value!
I'll work with that a little later, when I have more time. Thank you!
What values do you get for the input values of the OP?
Thanks for your input, but I'm focused on 0DTE, or 1DTE from prior close. Even though a Saturday calculation would technically be 2DTE, I figured that would throw things off too much due to the weekend.
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Okay... First I had to figure out what language you were speaking... turned out to be Python... then had to dig into Python to decipher math.exp()... I think I got that figured out... then converted the code over to a spreadsheet formula... and came up with:
3585*(POWER(2.718282,(0.2643*1*POWER(1/365.25,0.5)))-1) = 49.92
3585*(POWER(2.718282,(-0.2643*1*POWER(1/365.25,0.5)))-1) = -49.24
Which then gave me an estimated range of: 3535.76 to 3634.92
Assuming no mistakes, that result is only pennies different from the estimated range in my IV calculation (see first post in this thread) of: 3535.40 to 3634.60
And that leads me to believe that IV is the way to go, BUT...
It still doesn't explain *why* these IV-calculated ranges, which are supposed to reflect 1 sigma, are so far off from the 16 delta p/c strikes, which are also supposed to reflect 1 sigma.
That's just driving me nuts!! lol
I took a look at that, but I'm still pretty new to this options game and that looked a bit over my head.
You gave data of Friday at close and wanted a prediction for the spot range at expiration on Monday.Thanks for your input, but I'm focused on 0DTE, or 1DTE from prior close. Even though a Saturday calculation would technically be 2DTE, I figured that would throw things off too much due to the weekend.
From Friday close to Monday open are at least 2 calendar days (and yes my calcs use calendar days, ie. year has 365 days). So I gave the result for 2 and 3 days.
Do you mean you wanted to close it (or let it expire) on Saturday? How? Isn't the market closed?
Or is this maybe handled differently than usual?
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I am no expert, but you have the wind against you on a few fronts here!
1) You are likely using data from more than one source/derivation (delta's VS IV's) {error magnitude is greatly increased due to apples/oranges}
2) You are trying to estimate very short term movement. Very short term IV is noisy and may not be reliable. (This may be a lingering issue for you in accurate projection of expected movement for these short terms using IV!)
3) You are dealing with IV projection thru non-trading days, so use of trading time instead of calendar time may may be worth considering. -- Note the IV for a Monday Expiration implies trading days instead of calendar days was used in the option pricing!
Note: I do not do 0DTE trades, so have not developed/verified good approach to what you seek, and only pointing to things I have observed that are a bit problematic. -- I think your response of "That's just driving me nuts!" is justified and indicates you are thinking!
This is a very interesting subject, and since your using SPX, good data is available to help. Please continue to post you questions/progress -- I expect you are not alone in your quest!
1) You are likely using data from more than one source/derivation (delta's VS IV's) {error magnitude is greatly increased due to apples/oranges}
2) You are trying to estimate very short term movement. Very short term IV is noisy and may not be reliable. (This may be a lingering issue for you in accurate projection of expected movement for these short terms using IV!)
3) You are dealing with IV projection thru non-trading days, so use of trading time instead of calendar time may may be worth considering. -- Note the IV for a Monday Expiration implies trading days instead of calendar days was used in the option pricing!
Note: I do not do 0DTE trades, so have not developed/verified good approach to what you seek, and only pointing to things I have observed that are a bit problematic. -- I think your response of "That's just driving me nuts!" is justified and indicates you are thinking!
This is a very interesting subject, and since your using SPX, good data is available to help. Please continue to post you questions/progress -- I expect you are not alone in your quest!
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You gave data of Friday at close and wanted a prediction for the spot range at expiration on Monday.
From Friday close to Monday open are at least 2 calendar days (and yes my calcs use calendar days, ie. year has 365 days). So I gave the result for 2 and 3 days.
Do you mean you wanted to close it (or let it expire) on Saturday? How? Isn't the market closed?
Or is this maybe handled differently than usual?
Yeah, it got a little confusing. The entire exercise was probably invalid, but the only data I had was from Friday's close. Will revisit this when SPX options start trading again this evening.