what is going on with weekly IVs

[tradelosses]

How is it possible for weekly ES puts to have such a high IV...i'm seeing implied voaialtiy of over 45, which is more than even amazon.com and facebook Is this a typo. The 1935 put is a 9% decline ..and it's trading at a large amount.The 12-day ones are also crazy, but the delta on the weeklies is .07 for a 8.5% drop.

Obv. deltas are not probabilities but rather option sensitivity to the underlying, and probably the miggest rookie mistake is to equate deltas with probabilities. idiots on tastytrade make that confusion all the time.

lol the last time it fell that much in a week was 2008..really really glad I'm not selling these puts anymore ..had I sold the 10 contracts on Friday close thinking I 'got a good price' i'd be screwed

 

[JackRab]

How is it possible for weekly ES puts to have such a high IV...i'm seeing implied voaialtiy of over 45, which is more than even amazon.com and facebook Is this a typo. The 1935 put is a 9% decline ..and it's trading at a large amount.The 12-day ones are also crazy, but the delta on the weeklies is .07 for a 8.5% drop.

Where do you see in ES? 45 IV in weekly is about 4% in the straddle... which isn't weird per se, especially after the selloff on Friday. Is that 45 IV in the 1935 put? An ATM IV of around 25-30 seems more appropriate to me... (= +/- 3% straddle).

Obv. deltas are not probabilities but rather option sensitivity to the underlying, and probably the miggest rookie mistake is to equate deltas with probabilities. idiots on tastytrade make that confusion all the time.

Although you are correct about sensitivity... to use delta als a probability isn't that strange.
It comes from old school trading, when using no computers but mainly print outs etc.

IV calculates the straddle value, which approximates a 1-standard deviation move. At that point, the delta is approx. 20... and the 2-SD distance has approx. 5 delta.
If you do a quick drawing of the norm. distr. probability curve, 50% to the left, 50% to the right. 60% (actually 66) is within the 1-SD up/down.
20% left past 1-SD down and 20% past 1-SD up.

5 - 15 - 30 - 30 - 15 - 5
5 - 20 - 50 - 80 - 95 - 100

Not nearly exact but definitely a good quick approximation...
So I wouldn't necessarily say the TastyTrade guys are idiots...

 

[Gimpyron]

Where do you see in ES? 45 IV in weekly
Not nearly exact but definitely a good quick approximation...
So I wouldn't necessarily say the TastyTrade guys are idiots...

I will Just mention the amount of research and backtesting they provide on their site..
there is one guy here whom checked the data himself and confirmed the accuracy of it. I am talking about the research on deltas and on strategies in general.

 

[JackRab]

I will Just mention the amount of research and backtesting they provide on their site..
there is one guy here whom checked the data himself and confirmed the accuracy of it. I am talking about the research on deltas and on strategies in general.

So what are you saying, that they are right or wrong?

 

[Gimpyron]

I say no one can argue numbers
moreover, they said the whole delta measurement is not purely accurate and only
meant to give perspective

 

[JackRab]

I say no one can argue numbers
moreover, they said the whole delta measurement is not purely accurate and only
meant to give perspective

Right, that's what I thought...

@tradelosses , delta is based on volatility and distance OTM. Vol is connected to probabilities... hence their (and mine) link of delta's with probabilities.

 

[tradelosses]

If there is no skew then deltas and probabilities can be interchanged, but the skew makes the implied probabilities abnormally high (based on historical data). Ppl underestimate how quickly the skew grows in panics. When that happens the normal distirbuton goes out the window. People who use tasty trade option strategies may be in for a rude awakening when those small '2-sd' options that are not supposed to expire ITM suddenly get very big

 

[sle]

Actually, your best bet for probability calculations is to take two neighboring strikes as a spread (e.g. put spread) and divide it by the strike difference. That includes the skew adjustment. Using deltas as probabilities is reasonable as long as your tolerance is high enough - e.g. I'd not trade binary bets based on that, but it's good enough for most government projects.

 

[JackRab]

If there is no skew then deltas and probabilities can be interchanged, but the skew makes the implied probabilities abnormally high (based on historical data). Ppl underestimate how quickly the skew grows in panics. When that happens the normal distirbuton goes out the window. People who use tasty trade option strategies may be in for a rude awakening when those small '2-sd' options that are not supposed to expire ITM suddenly get very big

Well that's volatility and it's effect on the probability as a whole. What you do when you add skew (higher vols in OTM put) is you kinda give a higher probability to the tail and therefore a higher delta, because higher vol means higher delta OTM.

So in that way, it's still probability related. Higher vol means higher delta and higher probability.

Skew rises in a panic or when there's a big uncertainty coming up which both give higher probabilities to the downside. Same goes in a takeover situation, where there tends to be inverted skew, OTM puts have lower vol than ATM and OTM calls have higher vol... The market gives a higher probability to the upside..

 

[Shay]

Actually, your best bet for probability calculations is to take two neighboring strikes as a spread (e.g. put spread) and divide it by the strike difference.

can you please explain what you ment in your calculation

Thanks