I'm sure he wouldn't mind. With acknowledement to Peter Hoadley, here is what he said:
"The Open Positions Manager is mean for end of day valuation of an option
portfolio. It values each option using an IV which you enter manually and
the underlying asset price (which you can enter manually, use the Yahoo
button, or link to another provider using functions like HoadleySWQuotes.
To value your options at the end of the day (or an times during the day) you
just press the button and bring in the latest underlying price. That's all.
You would NOT normally recalculate IV. The reason is that IV fluctuates all
over the place for individual options for many reasons (eg the option prices
and underlying prices may not be taken at the same point in time (very
common); Just calculating IV for an option at the end of each day would be
pretty useless. You might as well just use the option values themselves for
valuation (which is the same thing as calculating IV). The whole point of
CALCULATING theoretical option values using the underlying rather than just
valuing your portfolio based on the last traded or quoted option price is to
get around the problems of using the option prices themselves. Options are
a very poor basis for valuing your portfolio.
The way most people handle it is to use the IV calculator to calculate IV of
the whole chain -- to get the complete volatility surface. Various smoothing
methods are used to eliminate market anomalies for individual options in the
IV calculator. The results are much more stable -- volatility itself is
fairly stable from day to day. Then to select a reasonable IV from that for
each option you are interested in and to use that in the open positions
manager. You would normally specify the volatility for individual options
(in column AA) of the positions sheet) rather than using the default
volatility on the underlying assets, settings sheet, as this way you will
correctly take into account the volatility smile.
Done this way you would not need to calculate IV every day. Perhaps once
every week or so you would check to see if there have been changes in the
volatility surface.
The key thing is: portfolio valuation (as opposed to making decisions about
an individual trade) is best done using theoretical option values using the
latest underlying price and a "stable" estimate of IV. That's the
assumption on which the Open Positions Manager was designed -- you
definitely don't want to calculate IV each day as, apart from being very
time consuming, that would be exactly the same as using the option prices
themselves for valuation which would be a very poor basis for valuing a
portfolio."
