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PureBytes Links
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Try http://www.optionvueresearch.com/index.cfm?opr=main.edu - they have a
few articles on the importance of volatility - good a place as any to start
and they cover the main points quite well.
Bundy
:
>Got any references on where I can learn more (especially how to determine
>"undervalue" and volitility)?
>
>TIA,
>
>d
>
>----------
>From: Arthur Sawilejskij [mailto:arthur@xxxxxxxxxxxxxxx]
>Sent: Thursday, April 01, 2004 6:31 PM
>To: amibroker@xxxxxxxxxxxxxxx
>Subject: Re: [amibroker] Re : volatility indicators to help with option
>trading
>Options trading can be risky and volatile - but if you get a handle on it -
>the returns and lifestyle are terrific.
>
>Option pricing and profitability is based on the implied volatility -
>generally in line with the short term volatility of the stock - but subject
>to short term fluctuations in implied volatility and price - meaning that
>at times options are overpriced or underpriced in relation to their implied
>volatility and short and long term historical volatilities.
>
>While at any time during their term options may be overpriced or
>underpriced - over the life of the option it will move towards it's fair
>value.
>
>So, setting aside directional considerations for the moment - if you buy an
>underpriced option - you can expect it to appreciate naturally with the
>passage of time (ignore time decay effects).
>
>Also, the short term historical volatility of a stock tends to oscillate or
>move or meander around it's long term historical volatility levels.
>
>So, the ideal setup is to buy undervalued options whose short term
>historical volatility is below the long term historical volatility level.
>
>The natural tendency of volatility and implied volatility to revert to the
>mean works in your favor - considerably compounding any directional benefit
>you get from the highly leveraged trade.
>
>If the options were overpriced and/or the short term historical volatility
>was greater than the long term historical volatility - the trade may not be
>favorable for buying a call, for example, but you could take advantage of
>the pricing disparity by selling puts instead - so that any probably
>subsequent drop in volatility would directly benefit your sold position.
>
>The converse - if you had of bought the calls in such an unfavorable
>environment - and price of the stabilized or only increased moderately and
>volatility came off - you would be facing a loss, notwithstanding that you
>had the direction right.
>
>Volatility is the most important consideration in options trading - and in
>the usa - with higher liquidity and greater volatility - you don't even
>have to trade direction - you just trade volatility - generally in spreads
>or combinations or adopt a delta neutral strategy.
>
>Bundy
>
>:
> >Could you explain how you use these volatility curves? What sort of
> >pattern/crossing would tempt you to buy an option, for example?
> >
> >Thanks,
> >
> >Steve
> >----- Original Message -----
> >From: <mailto:arthur@xxxxxxxxxxxxxxx>Arthur Sawilejskij
> >To: <mailto:amibroker@xxxxxxxxxxxxxxx>amibroker@xxxxxxxxxxxxxxx
> >Sent: Thursday, April 01, 2004 1:46 PM
> >Subject: Re: [amibroker] Re : volatility indicators to help with option
> >trading
> >
> >
> >
> > >Hi, I am currently trade option
> > >I am using the following volatility comparing short term and long
> > >term volality to time when to buy and sell options.
> > >
> > >pds1=30;//Set your time period
> > >pds2=200;//Set your time period
> > >Graph0 = StDev(log(C/Ref(C,-1)),pds1)*sqrt(365)*100;
> > >Graph1 = StDev(log(C/Ref(C,-1)),pds2)*sqrt(365)*100;
> > >
> > >Does anyone has better indicator that they use to compare short/long
> > >term volatility?
> > >
> > >Cheers
> > >
> > >Henry
> >
> >I trade options in Australia as well.
> >
> >I use the following for the volatility
> >
> >
> >
> >
> >
> >GraphXSpace=10;
> >
> >Plot(StDev(log(C/Ref(C,-1)),20) * sqrt(260)*100, "20 days",
> >colorRed, styleThick);
> >
> >Plot(StDev(log(C/Ref(C,-1)),30) * sqrt(260)*100, "30 days",
> >colorBrightGreen, styleThick);
> >
> >
> >Plot(StDev(log(C/Ref(C,-1)),90) * sqrt(260)*100, "90 days",
> >colorYellow, styleThick);
> >
> >
> >
> >I use 20 and 30 days to compare short term as my option trades are usually
> >in options that have 4 to 6 weeks till expiry - 20 to 30 days.
> >
> >I compare that to the 90 - which is what you want for HV.
> >
> >One further point - we have 260 trading days in the year - hence my 260
> >compared to your 365 days.
> >
> >I think you will find if you use my figures you will get HV measures that
> >accord with the official ones you get from the ASX - the HV values you
> >calculate would be way off and not much help in working out if your
> >shares/options are overvalued, etc.
> >
> >Been using the setup successfully for ages - great help for option trading
> >and keeps me out of trades where volatility shifts might kill the trade.
> >
> >Bundy
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