Relationship between implied volatilities of different timeframes

Martinghoul said:
I am not really all that familiar with USO... Do options on it really trade frequently enough for you to be able to observe fluctuations that you show on the chart?
More...

http://www.nasdaq.com/symbol/uso/option-chain
It's fairly liquid and widely held (high OIs for near the money options).
Also the calculation is using midpoint of Bid/Ask, and as long as bid/ask are comparatively OK (otherwise arbs will step in), the IV should not be way too off.
 
IMHO: I have not tried to analyze IV intraday, so may be missing something important. However, I think what you are observing should be expected behavior. Note: the diversion is mean reverting seeming to merely indicate the buying/selling pressure is not instantaneously uniform (you would not expect it to be), but is likely closely uniform over longer duration. May indicate either buying or selling pressure at a specific strike that subsequently seems to also appear in other strikes and expirations. It may be more visible if you produce a complete volatility surface including the expirations of interest, and observe the outliers to correlate to the graphs you are producing. This should help to pinpoint the source.
 
Hi stepandfetchit
I understand what you mean by reversion to mean, but the way the two ratios are moving in opposite direction, may be something unique to USO. I have not seen it in other ETFs of different assets (such as TLT, GLD, SPY, etc).

Regarding the complete volatility surface plot, I will probably need some work on my side, as I dont have the infrastructure to do that. Hopefully in the weekend.
 
So I can't even plot the 15 day vol properly, but it does look that you've observed some sort of a persistent movement, as the 1M vol outperforms both the short-dated and the 3M vol over the recent few days. I really don't know what might be behind it, although I can see that the 1M vol was also the relatively "beaten down" one prior to the recent moves.
 
I see your point about the USO IV30 itself. I can see it's sitting at a 3 month low. It has been beaten down a lot (this is google chart of OVX index for 3 months). Also attaching the chart from May 11 onwards, which shows how the OVX has spiked up both days, which may have caused the behavior I observed.

Screen Shot 2016-05-13 at 8.46.18 AM.png
Screen Shot 2016-05-13 at 8.41.28 AM.png
 
So, like I mentioned, I can't plot the shorter-dated vol properly, but at least you can observe what seems like a move in the 1M vs 3M since the 10th.

USOvol.jpg
 
So the spread is all over the place, from +1 to -1 and now again 0.5. Ideally, the spread should be negative (1M-3M) since 3M vol is usually higher than 1M vol. But oil being so volatile, I guess people are taking bets all over the place.
 
Well, there's definitely some directional component to this vol spread, as you can see from the long-term plot. Not sure what specific conclusion you may be able to draw from it.

USOvol-long.jpg
 
I am more looking from intraday point of view in short term to take some sort of swing trades based on how different IVs are moving. Normally, IV Short/Term rises when the underlying is falling and vice versa. But looks like oil behaves differently.
 
You must log in or register to reply here.
Back
Top