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Re: [amibroker] Re: Options Pricing and Probability.


  • Date: Sat, 23 Jan 2010 14:34:31 -0700
  • From: Howard B <howardbandy@xxxxxxxxx>
  • Subject: Re: [amibroker] Re: Options Pricing and Probability.

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Hi rr --

Thanks for the kind words about my books.

The Chicago Board Options Exchange (CBOE) calculates VIX -- the implied volatility (estimated volatility looking forward) of the S&P 500 index.  Their calculation uses 30 calendar days.  In order to compare the historical volatility with the implied volatility, the two volatility measurements must be normalized to a common length of time.

But any number of bars can be used -- whatever suits your purposes.

The VIX is based on the prices of options, not the other way around.

You can code Black-Scholes in afl and use it to calculate either:  the implied volatility of an option when you know its price, or the behavior of the price of the option if you know its implied volatility.  Using historical volatility in place of implied volatility may not be helpful.  Historical volatility looks back in time at what has already happened, while implied volatility looks forward in time to what might happen in the future.

If you want to use Black-Scholes within AmiBroker, you might try using VIX as a surrogate for the implied volatility in the option series you are working with.  Calibrate the volatility of your underlying with the volatility of the S&P 500 Index, than apply that ratio to the VIX.

If you just want to know the current value of the greeks and do some what-if analysis, it might be easier to use one of the on-line, Excel, or stand-alone options calculators.  Try these free sites:
Crimson Mind Options Data -- www.crimsonmind.com/options
IVolatility -- www.ivolatility.com
Option Trading Tips -- www.optiontradingtips.com
Option Price -- www.option-price.com
Or these that are not free, but have trial versions:
Visual Options Analyzer -- www.voptions.com
Hoadley Option Tools -- www.hoadley.net/options/options.htm
Excel Options Calculator -- www.kaininito.com/options/calculator

Don't forget the industry sites:
Chicago Board Options Exchange -- www.cboe.com
Options Industry Council -- www.optionseducation.org/

Thanks,
Howard





On Fri, Jan 22, 2010 at 7:07 PM, rr879rr <rr879rr@xxxxxxxxx> wrote:
 


Howard,
Enjoyed reading your book Quantitative Trading Systems; quite useful.

How do I calculate Historical Volatility? How far back would I have to look, if I am trading an expiry of 30 days?

Coding a Black-Scholes model in to Amibroker could give a good intuitive feel for how the Option price and the Greeks react to the underlying and time decay.

rr



--- In amibroker@xxxxxxxxxxxxxxx, Howard B <howardbandy@xxx> wrote:
>
> Greetings all --
>
> Historical data for options is both difficult to obtain and generally not
> useful. Only the most active options trade regularly enough to give
> accurate and useful OHLCV data on their own. And options expire, which
> means that the active contract has a useful history of about one month.
>
> But you can do system design based on the underlying, then use an options
> price calculator, such as Black-Scholes, to estimate the price of an option
> of your choice at the time of the transaction.
>
> Options pricing depends on several major factors -- Price of the underlying,
> Strike Price of the option, Time to expiration, and Implied volatility. And
> on some minor factors (which can often be ignored) -- Risk-free interest
> rate, Dividend payment schedule.
>
> The first three of the four major factors are easy to determine. You can
> either use recent historical volatility to estimate implied volatility, or
> use one of the volatility indexes, such as VIX, as a surrogate for implied
> volatility and calibrate the relationship for the specific issue you will be
> trading.
>
> Thanks,
> Howard
>
>
>
> On Tue, Jan 19, 2010 at 5:24 AM, Anthony Faragasso <ajf1111@xxx> wrote:
>
> >
> >
> > There is a Probability Calculator in the Library...
> >
> >
> >
> > ----- Original Message -----
> > *From:* rr879rr <rr879rr@xxx>
> > *To:* amibroker@xxxxxxxxxxxxxxx
> > *Sent:* Tuesday, January 19, 2010 3:07 AM
> > *Subject:* [amibroker] Re: Options Pricing and Probability.
> >
> >
> >
> >
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "louies88" <Louies88@> wrote:
> > >
> > >
> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, "rr879rr" <rr879rr@> wrote:
> > > >
> > > > Has anyone tried to do a Monte Carlo on the Probability value of the
> > Underlying Stock at Option expiration (using Amibroker, of course)?
> > > > Also, has any work being done in the area of Option Pricing and trading
> > Options using Evolutionary Algorithms supported by Amibroker(CMAE or
> > Particle-Swarm)?
> > > >
> > > > Maybe a little discussion on the above would be interesting.
> > > >
> > > > rr
> > > >
> > > Hello RR
> > >
> > > I didn't know that you can trade/analyze options in Amibroker. How did
> > you do that? Is there a link that I can find out more?
> > >
> > >
> > > thanks
> > >
> > Amibroker provides you a programming language and the charting ability. So
> > you can do any kind of analysis using Amibroker. If you study the underlying
> > math that relates to Options, you can program Amibroker to analyze Options.
> >
> > I would like to discuss here the experience that Amibroker users have had
> > developing/coding Option-related tools and techniques.
> >
> > rr
> >
> >
> >
>




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