Volatility skew

[sle]

Quote from IV_Trader:

I wonder if anyone actually making money by playing the vol skew. I personally had an excellent trades when I took the opposite position, buy current month and sell next one for upcoming event , especially when current month is at the week of expiration and most of softwares displaying "fake" IV numbers for couple of days before exp.

Dude, you are not playing the vol skew, you are playing the forward volatility. You should at least know the difference if you are calling yourself a vol trader.

This said, there are forward skew strategies, but they are very, very vega intensive and are mostly for MMs who can hedge their vega buckets by siding the quotes. I can go into details, but not now.

In addition, while I don't trade equity options, I can not imagine that there would by any "fake IV numbers" quoted given the number of MMs compeeting in that space.

 

[Mercury77]

Quote from sle:

Dude, you are not playing the vol skew, you are playing the forward volatility. You should at least know the difference if you are calling yourself a vol trader.

This said, there are forward skew strategies, but they are very, very vega intensive and are mostly for MMs who can hedge their vega buckets by siding the quotes. I can go into details, but not now.

In addition, while I don't trade equity options, I can not imagine that there would by any "fake IV numbers" quoted given the number of MMs compeeting in that space.

Thank God I am not the only one with that opinion

 

[IV_Trader]

Quote from sle:

Dude, you are not playing the vol skew, you are playing the forward volatility. You should at least know the difference if you are calling yourself a vol trader.

This said, there are forward skew strategies, but they are very, very vega intensive and are mostly for MMs who can hedge their vega buckets by siding the quotes. I can go into details, but not now.

In addition, while I don't trade equity options, I can not imagine that there would by any "fake IV numbers" quoted given the number of MMs compeeting in that space.

Sle , I read your other posts and I respect your opinion. But my reply to the thread starter wasn't about some specific strategy, it was about some questionable methods of IV calculations. Here are some other facts that will affect different types of Vols calcs :
1. "Fake" IV in the week of exp ( just watch IV numbers displayed by IB couple of days before exp , they are growing by hours !)
2. Miss of stock split(will affect HV that derives from stock history)
3. Adjustment to big, one time dividend, is missing (hence , HV is incorrect)
4. Strike not exists for low nominal stocks ( there is no 2.5 put for 3$ stock)
5. Footnote is not attached to the stock that was recently been bought out (cash)
6. Simple calculations of HV , instead of exponential and smooth
7. I can go on here for ever
The above issues will affect the screening fields such as Calendar Skew( or whatever its called) , IV changes from day to day , HV/IV ratios and many others.
The retail option trades can not afford and don’t have an access to applications used by pros/MM. Most likely they will subscribe to 40$-200$ month analytical software provider and I am not sure if this provider properly addressed all the issues that I describe.
If you (Sle) have an access to in-house application or one of the big three like Bloomberg, Reuters or Thompson Financial, then good for you. But many on this board don’t. And if you think that big three are bullet proof when its comes to data and culcs , I have a news for you and I should know better , I used to work for one of them.
I will not go into strategy and results debate again , looks like it will trigger angry replies from pros/MM again. It is what it is.
Good luck.

 

[Mercury77]

Quote from IV_Trader:

1. "Fake" IV in the week of exp ( just watch IV numbers displayed by IB couple of days before exp , they are growing by hours !)

The IV the last couple of days before expiration is almost unimportant because most call and puts have either a delta of 100 or -100 or a delta of 0. So the question if you trade the ATM as a retail trader should only be can I overcome the premium I have to pay or is the premium I receive enough for the move you expect to come. As a pro or MM its just a gamma play (short or long), Vega plays absolutely no role anymore. So for what reason do you look at the implieds a couple of days before expiration and is it so important to get the "exact" values? Models are useless such a short time before expiration.

 

[Profitaker]

I don't know what the fuss is about. The poster only wants to know how to calc IV realtime !

All you need is a means of bringing a live price(s) into an Excel spreadsheet, and the rest is a piece of cake - calculate IV on the bid / mid / ask price, adjust for divs / splits / illiquidity - delta, gamma, vega till you're hearts content !

There are many dificult questions posted up on these boards, but this ain't one of them !

 

[Mercury77]

Quote from Profitaker:

I don't know what the fuss is about. The poster only wants to know how to calc IV realtime !

All you need is a means of bringing a live price(s) into an Excel spreadsheet, and the rest is a piece of cake - calculate IV on the bid / mid / ask price, adjust for divs / splits / illiquidity - delta, gamma, vega till you're hearts content !

There are many dificult questions posted up on these boards, but this ain't one of them !

Totally agree with you profitaker! But as in most threads on ET the topic changes in to a completely different discussion

 

[nitro]

Quote from IV_Trader:

I was just posting my opinion (read my first post) , and didn't try to "teach" anyone , looks like you the one that doing it. But if I will want to , I will sure not going to ask your permission. Now , back to assumptions/interpretations : should I assume that you was fired from your MM job ? Maybe because of your arrogance and poor performance ? Just guessing here.

My assumptions are that you read "Advanced Options Made Easy" the other day and now think you can trade the skew. Just guessing here.

nitro

 

[nitro]

Quote from Profitaker:

I don't know what the fuss is about. The poster only wants to know how to calc IV realtime !...

What happens is that someone trying to understand a concept posts an honest question and sometimes not so honest - sometimes what happens is that some guru or a team of them start a thread to make themselves look like gurus and try to suck in unsuspecting newbies into their chatrooms etc by appearing to know what they are talking about.

Anyway, then the multitude of gurus jump in trying to teach the guy something and you can always tell who started trading yesterday and who actually either makes a living doing this now or did at one time.

nitro

 

[Profitaker]

Quote from nitro:

..... and try to suck in unsuspecting newbies into their chatrooms etc.

Why ?

 

[nitro]

Quote from DeltaDelta:

I am relatively new in options trading, and have found that especially the volatility skew is a major factor in the pricing of options.
I want to hear if anyone know of a piece of software that can show the volatility skew op an option in real-time. (an advanced excel sheet could suffice)
I am looking for something like this: http://www.softcapital.com/video.asp?en (click on volatility smile)

But the price of this software is out of my league, and I am looking for something with almost the same func. and preferably shareware, free

/Peter

You can open an account with TOS at http://www.thinkorswim.com and most of this stuff is graphed for you. Then if you like the software, open an account with them for like $2500 and the software is free.

nitro