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Evaluating Volatility
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Created: by TNGreg Attachments:7

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Evaluating Volatility

  #11 (permalink)
1.Fibs 2.??? 3.Profit
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timefreedom View Post
Is there a way to display the Current IV Percentile on the MarketWatch tab in TOS? I can find ImpVolitility and VolIndex, but I don't see Current IV Percentile. Thanks.

It's "IV_Percentile" in the customize window:

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Evaluating Volatility-iv_percentile.png  
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  #12 (permalink)
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timefreedom View Post
Is there a way to display the Current IV Percentile on the MarketWatch tab in TOS? I can find ImpVolitility and VolIndex, but I don't see Current IV Percentile. Thanks.

If you are using ThinkOrSwim, you can also plot it on your charts.

For mines on the lower chart:
IV = Red
HV = White
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There are individual exceptions of course but for the most part:
If red > white = overpriced IV
if red < white = underpriced IV

Also, the scale of the chart on the right hand side is percentile from 1-100 as well.

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  #13 (permalink)
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I don't know if thinkorswim has IV and HV together in an indicator, to save space I combined them a while back and added some labels to it. Also attached is something like the ones they use on tastytrade with the IV Rank and Price Change on top. The IV_Rank_SD study above the green line is high vol, below the red line low vol.

Attached Thumbnails
Evaluating Volatility-2014-01-31-tos_charts.png  
Attached Files
Register to download File Type: ts X_VolatilitySTUDY.ts (789 Bytes, 30 views)
Register to download File Type: ts TastyTrade_IV_Rank_SDSTUDY.ts (1.8 KB, 33 views)
Register to download File Type: ts TastyTrade_IVStudySTUDY.ts (1.0 KB, 26 views)
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  #14 (permalink)
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TNGreg (original poster),

Here's a source to help you learn about where HV has been over the last one and three years in major CME products.

http://www.cmegroup.com/education/volatility-monitor-update.html

I continue to recommend running some HVs on a longer time series because I think it's important to know what happened during the worst of 2008-2009, and then during spots of 2010-2011 (Euro/Greece/US Debt), but the reports found at the above link (they include percentiles) are a good place to get your feet wet.

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  #15 (permalink)
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CafeGrande View Post
TNGreg (original poster),

Here's a source to help you learn about where HV has been over the last one and three years in major CME products.

http://www.cmegroup.com/education/volatility-monitor-update.html

I continue to recommend running some HVs on a longer time series because I think it's important to know what happened during the worst of 2008-2009, and then during spots of 2010-2011 (Euro/Greece/US Debt), but the reports found at the above link (they include percentiles) are a good place to get your feet wet.

Thanks! I'm deep into HV & IV studies now... If I don't surface after a week or so, send a rescue party!

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  #16 (permalink)
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CafeGrande View Post
TNGreg (original poster),

Here's a source to help you learn about where HV has been over the last one and three years in major CME products.

http://www.cmegroup.com/education/volatility-monitor-update.html

I continue to recommend running some HVs on a longer time series because I think it's important to know what happened during the worst of 2008-2009, and then during spots of 2010-2011 (Euro/Greece/US Debt), but the reports found at the above link (they include percentiles) are a good place to get your feet wet.

Up for some air because I have a question...
I have seen two different (so far) methods for reviewing HVOL.

One calls for using continuous charts (or also called Long Term Daily chart). I assume these types of charts are a compilation of front months with which I can strip the last 10 DTE if I desire.

Another method is to just simply use only the front month.

Is one more reliable or desired over the other?

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  #17 (permalink)
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TNGreg View Post
Up for some air because I have a question...
I have seen two different (so far) methods for reviewing HVOL.

One calls for using continuous charts (or also called Long Term Daily chart). I assume these types of charts are a compilation of front months with which I can strip the last 10 DTE if I desire.

Another method is to just simply use only the front month.

Is one more reliable or desired over the other?

This is the same issue those who trade the underlying using technical analysis face; there are several methods to constructing a continuous contract and fierce opinions on which one is best.

I don't think there is a single, correct HV measurement for all markets. In a period of relatively stable volatility, a continuous front month might work fine for most markets but what about these examples --

1. Silver or Gold if the data service uses 'front months' that the market ignores and puts all the liquidity elsewhere. In SI for example, Mar, May, Jul, Sep, Dec are active even though...

Trading is conducted for delivery during the current calendar month; the next two calendar months; any January, March, May, and September falling within a 23-month period; and any July and December falling within a 60-month period beginning with the current month. http://www.cmegroup.com/trading/metals/precious/silver_contract_specifications.html


2. The Jul/Sep, Sep/Dec or Sep/Nov contract rollovers in corn and soybeans and several of the contract rollovers in hogs frequently have large price gaps and may have large volatility differences, too.

3. Nat Gas today where short term HV in Mar is 100%, there are still at least ten days to go in the options and future, but if you use Apr the short term HV is about 40%. That said, I think Nat Gas and Crude Oil, since they are extremely liquid and have 12 contracts per year (as opposed to the grains) can be good candidates for a Continuous front month or Continuous second month most of the time.

I sometimes use three price series - Continuous 1st, Continuous 2nd, and specific month - and whatever series I use, I think it's important to run HVs in a couple of of increments out to at least 90 or 100 days, especially if you're trading longer dated options.


Last edited by CafeGrande; February 8th, 2014 at 04:26 PM.
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  #18 (permalink)
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CafeGrande View Post
This is the same issue those who trade the underlying using technical analysis face; there are several methods to constructing a continuous contract and fierce opinions on which one is best.

I don't think there is a single, correct HV measurement for all markets. In a period of relatively stable volatility, a continuous front month might work fine for most markets but what about these examples --

1. Silver or Gold if the data service uses 'front months' that the market ignores and puts all the liquidity elsewhere. In SI for example, Mar, May, Jul, Sep, Dec are active even though...

Trading is conducted for delivery during the current calendar month; the next two calendar months; any January, March, May, and September falling within a 23-month period; and any July and December falling within a 60-month period beginning with the current month. http://www.cmegroup.com/trading/metals/precious/silver_contract_specifications.html


2. The Jul/Sep, Sep/Dec or Sep/Nov contract rollovers in corn and soybeans and several of the contract rollovers in hogs frequently have large price gaps and may have large volatility differences, too.

3. Nat Gas today where short term HV in Mar is 100%, there are still at least ten days to go in the options and future, but if you use Apr the short term HV is about 40%. That said, I think Nat Gas and Crude Oil, since they are extremely liquid and have 12 contracts per year (as opposed to the grains) can be good candidates for a Continuous front month or Continuous second month most of the time.

I sometimes use three price series - Continuous 1st, Continuous 2nd, and specific month - and whatever series I use, I think it's important to run HVs in a couple of of increments out to at least 90 or 100 days, especially if you're trading longer dated options.

Thank you Cafegrande once again for your input. I greatly appreciate it!

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  #19 (permalink)
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rmejia View Post
I don't know if thinkorswim has IV and HV together in an indicator, to save space I combined them a while back and added some labels to it. Also attached is something like the ones they use on tastytrade with the IV Rank and Price Change on top. The IV_Rank_SD study above the green line is high vol, below the red line low vol.

I say these IV studies on Tom S. screen about 20 minutes and googled it and found you guys here. Thanks!

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  #20 (permalink)
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At the risk of stating the obvious, keep in mind that HV is backward looking (previous volatility), and IV is forward looking (anticipation of future volatility as reflected in the the option premium). So comparing IV to HV is not always helpful because the time periods are out of sync. Comparing IV to your forecast of future volatility might make more sense.

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