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Re: [Metastockusers] Metastock IV??



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Kelvin,
Appreciate your kind help. it's is so concise  that I have no
problem inputting them into the explorer. In fact, I ran a couple of
securities and it came up with nice short list. Now I need to understand
the other portion of verifying the implied volatility of the filtered
list.
Below is the list of exploration base on the formula. Let's pick DDS
securities that was filtered by exploration. I have included the option
quote for DDS below. I believe the volatility should be compared at ATM,
correct ? Let's pick DDSQV being ATM, the optionscope volatility base on
strike 12.5, option price 0.65, expiration May, underlying 12.98, the
result is 51.29. How do you compare the implied volatility from here
?
Best Regards
Freddie Ng



At 08:58 AM 4/11/2003 +0100, you wrote:
Hello Freddie,
I'm very happy to be of help.
You could do it like this:
colA
(Std(Log(C/Ref(C,-1)),10) * Sqr(365))
<0.5*(Std(Log(C/Ref(C,-1)),100) * Sqr(365))
colB
(( HHV(H,10 ) - LLV(L,10))/C) * 100
colC
LLV( (( HHV(H,10 ) - LLV(L,10))/C) * 100  ,253)
Filter
colA AND (colB < 1.05 * colC)
If you would like to get more hits, ease out the 5% limit to, say,
10%:
colA AND (colB < 1.1 * colC)
You may also find it interesting to add a volume argument in colD such
as:
V/Mov(V,10,S)*100
A value greater than 100 will identify volume > the 10 day MA. High
volume on a narrow range bar indicates a draw in the bull/bear battle and
is often an advance warning of a breakout.
Email me from Honolulu!
Regards,
Kevin

At 09:47 11/04/2003 +0800, you wrote:
Kelvin,
Thanks for the excellent explanation on differences between IV and HV.
Those formula given by you was very exciting. Do I program them into the
filter of the explorer ? 
I did the first formula that filters out securities that are below 50 and
the list of securities were verified to be correct on their HV- Great
!
Then I put the remaining formula into the explorer with the first one, a
list of securities were filtered but I am not sure if I am doing the
right thing as the list looks weird. 
Could you enlighten me your approach in using the formula in
Metastock.
Best Regards
Freddie NG


At 09:40 AM 4/10/2003 +0100, you wrote:
Hello Freddie,
It is essential to grasp the difference between the two kinds of
volatility 
that we are talking about here when applied to options trading.
Historical 
Volatility is the volatility of the underlying SECURITY over the PAST
week, 
month, year, whatever, whereas Implied Volatility is a GUESS of what the

volatility of the OPTION might be over the NEXT week, month or year.

'Historical' implied volatility is something else again being a history
of 
what everybody's guess was over a period of time. Typically, it is the

average of what the Implied Volatility WAS of the close-to-the-money

strikes BACK THEN.
When trading volatility, one theory is that a period of low volatility is

usually followed by a period of high volatility and vice versa. Because
the 
Implied Volatility (of the OPTION) has a big effect on the price of the

Option, the idea is to identify Options having low IV with a view to
buying 
them (because they're 'cheap') expecting IV to rise in the future or

identifying Options having high IV with a view to selling them, thereby

collecting a high premium. How you define high/low volatility or 
cheap/expensive options is open to debate.
Therefore, from end-of-day data, you can only plot the Historical 
Volatility of the underlying security. There is no way that you can
deduce 
the 'historical' IV from EOD security prices. As I mentioned before, in

order to do that you must have access to the history of GUESSES. I 
apologise for misleading you regarding the availability of free IV data
at 
OptionsXpress. If you have a trading account with them, you get that

information free. I have attached a sample chart for you showing what IV

looks like when plotted against HV and the EOD price of the security.

Perhaps it's an indication of how valuable that information is that it is

not simply given away.
One of Don Fishback's recommended strategies is to scan for securities

having very low short-term HV. You can do this with the Metastock
Explorer. 
First, identify securities having the 10 day HV less than 0.5 of the 100

day HV:
(Std(Log(C/Ref(C,-1)),10) * Sqr(365))
<0.5*(Std(Log(C/Ref(C,-1)),100) * Sqr(365))
It is traditional to use a calendar year (365 days) for this
calculation.
Then calculate the H/L range within which these securities have traded
over 
the past 10 days:
(( HHV(H,10 ) - LLV(L,10))/C) * 100
Now identify those securities whose H/L ranges are within 5% of their

lowest 10 day trading range over the last year:
LLV( (( HHV(H,10 ) - LLV(L,10))/C) * 100  ,253)
I have used the approximate number of trading days in the year (253) for

this calculation.
This exploration should produce a list of securities currently trading at
a 
yearly low Historical Volatility and a therefore potential candidates
for, 
say, straddle purchases. You must now make use of the Metastock
Optionscope 
calculator to ensure that the IV is ALSO currently still low before 

progressing further.
I sincerely hope that this helps you.
Regards,
Kevin

At 09:47 10/04/2003 +0800, you wrote:
>
>Kelvin,
>
>I assume option volatility in Metastock is base on EOD although Pro
version
>has both EOD and RT. However I am not sure if you download intraday
data,
>will the option volatility be computed based on the intraday. I
couldn't
>access the formula of it, otherwise we can examine to see what it
does. By
>an chance, do you have its formula ?
>
>Do you have information on Don Fishback, it seems that you know quite
a
>bit. I could modify the period and percentage in Don's indicator to
show
>different coverage on chart. But I really need to understand how to
apply
>it for option analysis - need application notes. I can do paper trade
to
>evaluate it's truth.
>
>I viewed OptionsXpress site, you must open an account in order to
access
>the charting of "Historical IV". Could you demo and capture
a screen of it
>and post it to me. Btw, are you a member there ?
>
>Best Regards
>Freddie Ng
>
>At 06:20 PM 4/9/2003 +0100, you wrote:
> >I have noticed a few posts recently suggesting that the
Metastock Option
> >Volatility indicator plots implied volatility. I suggest a
little caution
> >here. There is not sufficient data in stock end-of-day prices to
calculate
> >the implied volatility of the options on that stock. In order to
do that,
> >you would require the option prices for the complete chain.
Also, bear in
> >mind that options for different strike prices may well have
different
> >implied volatilities. Sometimes the difference is quite
marked.
> >
> >The Option Volatility indicator can only be based upon some kind
of
> >historical volatility formula. Therefore, if you are comparing
this to,
> >say, the Fishback historical volatility indicator, which is
based upon a
> >linear regression calculation, you are comparing like to like
and it will
> >be of no use to you for options trading.
> >
> >In order to see 'historical' implied volatility, you will need
to access a
> >website that has all of that data stored. I think that
OptionsXpress will
> >let you chart 'historical' IV on particular stocks for
free.
> >
> >Regards,
> >Kevin
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