What is IV?
- Thread starter morganpbrown
- Start date
When I said "visualize", I didn't just mean the payoff. I am also interested in visualizing the greeks & IV across strikes and over time. As well as the net greeks & IV for a multi-option position. I'm just a putz trying to wrap my head around this stuff before I really commit, but I find myself stuck, because options information is highly multi-dimensional, and there's no googlefinance() function for options! Which ORATS subscription do you think would be most appropriate?
Yeah, definitely not wedded to RH (or Merrill Edge); it's just where i started. Inertia and pain of changing is the only thing keeping me at RH. I suppose I could spring some cash free and just start an account at a different broker without moving the RH money over there.
So I took @destriero 's advice and looked at Derman's sticky delta/sticky strike work (e.g. https://www.math.columbia.edu/~smirnov/Derman.pdf) to model how IV changes when the underlying price changes. Interesting.
If I understand it correctly, sticky delta assumes that IV remains linear with "moneyness" (K/S) as S evolves in time:
That seems to be true on the SPY, for +/- 3% of the index price:
The slope (m) and intercept (b) of the line changes with DTE. I plotted the m and b for several DTE and noted a weak logarithmic decay, though linear is a good fit. The trendlines show the particular equations.
So anyway, I would then model IV vs moneyness (K/S) and DTE as follows:
In this particular case, A=0.295, B=-2.28, C=-0.285, and D=2.43
I can then model out IV as I change the index price, S. In this case, S rises $0.50/day over 105 days.
If S falls $0.50/day, the IV looks like this:
Nice and simple. Now please tell me how I am smoking crack. And when such a model would break.
Thank you.
If I understand it correctly, sticky delta assumes that IV remains linear with "moneyness" (K/S) as S evolves in time:
IV = m*(K/S) + b
That seems to be true on the SPY, for +/- 3% of the index price:
The slope (m) and intercept (b) of the line changes with DTE. I plotted the m and b for several DTE and noted a weak logarithmic decay, though linear is a good fit. The trendlines show the particular equations.
So anyway, I would then model IV vs moneyness (K/S) and DTE as follows:
IV = m*(K/S) + b
IV = [A*ln(DTE)+B]*(K/S) + C*ln(DTE) + D
IV = [A*ln(DTE)+B]*(K/S) + C*ln(DTE) + D
In this particular case, A=0.295, B=-2.28, C=-0.285, and D=2.43
I can then model out IV as I change the index price, S. In this case, S rises $0.50/day over 105 days.
If S falls $0.50/day, the IV looks like this:
Nice and simple. Now please tell me how I am smoking crack. And when such a model would break.
Thank you.
You are operating above my weekend paygrade,but Ill go out on a limb and bet you are using a pipe 
On another note why the FOOK is a guy as bright as you trading thru Robin Hood??? (see above??)
On another note why the FOOK is a guy as bright as you trading thru Robin Hood??? (see above??)
You are operating above my weekend paygrade,but Ill go out on a limb and bet you are using a pipe
On another note why the FOOK is a guy as bright as you trading thru Robin Hood??? (see above??)
This MWM is actively seeking a SAB (single awesome brokerage): https://www.elitetrader.com/et/threads/best-broker-for-options-trading.361922/
I tell you what...having dinked around with pattern-based trading and options for about 3 years now, I don't feel very smart at all. I have devolved to trading a portfolio of Poor Man's Covered Call, trying to simulate and beat "the index", or match it with lower volatility. Pretty mundane strategy and it's not at all clear if I am achieving my relatively pedestrian goal. All told, this has been a very humbling experience.
Too bad I'm obsessed with this stuff...
