Reliable implied volatility measure for ES ?

Sekiyo

Sekiyo

Hi,

From looking at the ES data,
I've found that some days, the realized volatility (High-Low) is more than twice the previous day.
I am trying to find a reliable measure of future realized volatility for risk management.

For example,
On January 23th the daily range was 25.5 points or 1275$ per contract.
So I set my margin for January 24th as 1275$ x 2, 2550$, by precaution.
However on January 24th the daily range turns out to be 56 points or 2800$.

Which mean I am basically at risk of losing more than 100% of my account.

Does the VIX or anything like that provide a reliable estimation of the future realized volatility ?

Thanks.
 
As far as I know - the VIX basically anticipates daily change, not range.

So, if the market opens flat and have a % change of - 10 % - you'll have a huge range. But if it opens down 5 % at the Open and have a % change of - 10 - you'll basically have half the range.

Your best bet is probably to calculate the actual range of the instrument you're trading and using that.

Ranges expand and contract. I think you will find it hard to predict without really putting some work into it. Basically, you're asking to predict the future. Anyone who can do that ain't going to share it publicly in this thread.

As for margin - is it not better to let that be decided by your required stop loss on any given trade...?
 
Sekiyo said:
I am trying to find a reliable measure of future realized volatility for risk management.

Does the VIX or anything like that provide a reliable estimation of the future realized volatility ?

Thanks.
More...

The VIX -- as an agglomeration of available expiries and individual strikes -- makes such a handy tool for estimating "future realized volatility" :D that it was turned from an idea to a paper to a commissioned work group to an index to a traded entity. Can't beat that for chops.

But it remains, at its heart, a measure derived from market pricing; it's an estimate derived from estimates. Is it reliable? Sure! Is it perfect? No, but nobody promised that, either.

If you're a trader that evaluates news/data/market action into their trading (and most of us are), then you'd be in good company to note those times when [backward-looking] realized comes in above [forward-looking] VIXies. Some live&die by it -- ask a 'tasty-trader'. Some ignore it altogether. FWIW, I'm probably in the middle -- I plot it on my charts, but I only key-in to view it on occasion -- maybe once a month -- probably mostly for grins. Notable: historic vol as a data item plays no roll in my ST or LT{algo} trading, but the ATR [conformable to mimic volatility nearly 100%] is on every graph/timeframe template from which I work.
 
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