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Hi guys for the useful links about option / volatility
I find this link an interesting reading
http://www.ivolatility.com/news/Putting_volatility_to_work.pdf
Does anyone trade the ASX-50 options know how w can get Implied Vol.
(IV) current anf historic for the ASX-50 options ?
It seems that u need both HV and IV to help with option strategy
Anyone recommend any useful book to trade option in ASx-50 ?
thanks again
cheers
Henry
--- In amibroker@xxxxxxxxxxxxxxx, "Steve Almond" <steve2@xxxx> wrote:
> Bundy,
>
> Thanks for the explanation. I am reasonably familiar with the
concept and importance of volatility in options trading. What I was
more interested in was the specific interpretation of the volatility
curves you wrote in AFL.
> For instance, looking at the attached chart of DIA, does the
interesting looking crossover of the curves around 3/12/04 tell you
something important?
>
> Steve
>
>
>
>
>
> ----- Original Message -----
> From: "Arthur Sawilejskij" <arthur@xxxx>
> To: <amibroker@xxxxxxxxxxxxxxx>
> Sent: Friday, April 02, 2004 12:30 AM
> 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@x...>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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> >
> >
> >
> >
> >
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