price percentile

I think you can compare the d1 and d2 found inside the BSM function.
Ie. compare d1 of that strike to the d1 to the other strike, etc.
IIRC, they are the z-scores, and then they get overwritten with the corrosponding p-values, or something that.
Both cases, z-score or p-value, should be useful for doing such comparisons over different strikes and/or different maturities.

But I admit it is still unclear to me what exactly you are looking for.
You better should formulate a short, clear and unambiguous question; just a tip from me.
 
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@Shay interesting idea :)!

From what I understood, you would like to find a way to check if price of certain option at certain time is in some way unusual, out of ordinary.
The main idea behind this is to compare it with other options, and the big question is how/when are they comparable, how are we going to define comparison that makes sense?

Here is an idea: if we have two options that have the same DTE (days to expiration), moneyness (= strike / spot price -> it is a way to normalize strike) and IV (implied volatility), they should have the same/similar price.

So a good way to check if something is off with price of option P is to go through historical data, take all options with same DTE, moneyness and IV as P and see how price of P falls into distribution of their prices.

There will probably not be enough data points in historical data with exactly the same DTE, moneyness and IV so you should probably relax the definition of "equal" and also tolerate small differences in those parameters.

Note: main idea for this approach comes from blog post on comparing bid-ask spreads that my colleague wrote, where he compares current bid-ask spread with historical data, but he also compares bid-ask spreads among multiple different tickers.
 
Martinsos said:
@Shay interesting idea :)!


Here is an idea: if we have two options that have the same DTE (days to expiration), moneyness (= strike / spot price -> it is a way to normalize strike) and IV (implied volatility), they should have the same/similar price.
More...
this is not true whatsoever, read up in the inputs for option models ... there are other variables which influence the price ...
overall the whole idea behind this whole thread sucks ... everybody that was around in in 2001 or 2008 or earlier when you had the Asian-crisis in the nineties knows that ... it works untill it suddently totally stops working ...
 
Martinsos said:
@Shay From what I understood, you would like to find a way to check if price of certain option at certain time is in some way unusual, out of ordinary.
The main idea behind this is to compare it with other options, and the big question is how/when are they comparable, how are we going to define comparison that makes sense?

Here is an idea: if we have two options that have the same DTE (days to expiration), moneyness (= strike / spot price -> it is a way to normalize strike) and IV (implied volatility), they should have the same/similar price.

So a good way to check if something is off with price of option P is to go through historical data, take all options with same DTE, moneyness and IV as P and see how price of P falls into distribution of their prices.
More...

not fully accurate -
i don't want to compare option of symbol 1 with option of symbol 2
i want to create a price rank (like IV rank/percentile that we saw in TastyTrade).
but the idea is to take moneyness, normalize the DTE,
(and i think without normalized the IV !)
and check the price percentile (if the IV is high, the price can be high as well)
think IV Rank but with price !

Martinsos said:
@Shay
Note: main idea for this approach comes from blog post on comparing bid-ask spreads that my colleague wrote, where he compares current bid-ask spread with historical data, but he also compares bid-ask spreads among multiple different tickers.
More...

i like the idea behind the blog post !
 
cvds16 -
thank you for your inputs.
i would like to develop an idea,
maybe it will fail and maybe it will succeed.
i don't need people to put me down by telling me all the time how much my ideas are foolish.

There is no innovation and creativity without failure. Period [Brene Brown]
 
Ok sure, I left open the question of using the same symbol or not, but approach is the same.
Why would you not normalize over IV, do you have some specific reason? I do not think you can just disregard the IV, what you get will not be comparable (at least in the way I think about it).
Of course, it depends on what are you looking for - if you are looking for unusual prices changes where volatility as a cause is also fine then it could make sense, but if you want to skip unusual changes in volatility (because you can see those with IV rank anyway) then normalization/bucketing of IV is needed, correct?
 
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Martinsos said:
Ok sure, I left open question of using the same symbol or not, but approach is the same.
Why would you not normalize over IV, do you have some specific reason? I do not think you can just disregard the IV, what you get will not be comparable (at least in the way I think about it).
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if i normalize everything including IV
i will get what you wrote - price that is unusual, out of ordinary

and i want something else -
i want a measure to put the price in perspective.
to see how much it is higher comparing to the last year.
yes, it will probably be in correlation with high IV,
but maybe it will tell me something that i am missing when i only look at IVRank

look at this example -
upload_2016-3-14_20-47-40.png


the same DTE, the same moneyness, and the same IV
but the price is 80% higher in line #1 than of #3
so maybe it will change my decision if i want to enter the trade on 21/12/2009 (line #3)
if i know that the price is in 0% percentile (i didn't check exactly, just an example)

Shay
 
Ok @Shay, thanks for explanation - so as you said, you are looking for interesting prices, but including effect of IV, and not excluding it as I suggested.

I wonder if it is more useful to look only at interesting prices with included effect of IV, or looking separately at IV rank and interesting prices with excluded effect of IV. Probably depends on what are you using it for.

I feel like idea is clear now - so what is the exact question regarding it :)?
 
Martinsos said:
I feel like idea is clear now - so what is the exact question regarding it :)?
More...
now it is more clear to me as well.

i understand moneyness and i will insert it in my database.

how can i normalize the DTE ?
i have theta, it's simply decreasing the value of theta from the option price, or something else ?
 
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