Day Trading Stocks & Futures

[Smart_trade]

There is a typo error in my post above. Bajaj Finance one can buy if it retraces to 3100-3150 instead of 2100-2150 mentioned....

I am correcting the original post.

Smart_trade

 

[lemondew]

Well the best way to calculate if options are expensive I figured out is compare the combined premium of ATM prices calls/puts this expiry with the combined premium of the last 20- 30 expirys with the same number of days to expire left. That would tell us whether an IV of 9 or 8 or whatever when 14 days to expire is less/ more. That kind of data should be available doing meaningful analysis. Thanks to RM he has been very kind to give us good data on futures to do data study. A boon to data students.

I couldnt find so much data on options.

Obviously, you have never paid much attention to IVs. What else would you compare of different strikes if not IV? The option has only 2 things. Intrinsic value and a premium. The premium is nothing but IV along with time value for expiry for this option.

All strikes are equally priced. Nothing cheaper/costlier than other strikes. (difference in prices/iv's are due to difference in strike distance from Spot) - - - You are not correct here. All strikes are not equally priced. Options routinely get mis-priced and there will be strikes which become cheaper/expensive in a trading day. If all strikes were equally priced then we would not have any need for IVs. Moreover, you are implying that all option strikes will move the same way which is not the case.

Compare present IV's of a particular strike to IV's of the same strike of previous day, and that will give a fair idea if options are cheap/costlier comparatively. - Again you are not correct. Yesterday's IV is now HV. Cant compare today's IV with yesterdays HV. Implied Volatility is future looking and not into the past. For ex IV of 11600 put yesterday will not be the same if market today trades at 11500. So, how can you compare with yesterday's IV? Comparing apples and oranges?

For most of the traders, this iv values is not really useful. Some basics are enough to avoid getting into traps.----Again, this is not correct. IV is a very useful tool for a buyer to see how options are priced. For example. Assume Underlying is at 11880. For a 11800 strike with 14 days to expiry and an IV of 9.6, a put option will up by over 18% if IV went up by 10%. Similarly, a call option would change by close to 5%... other things remaining the same.

IV is not a single measure to determine cheap/expensive options. It has to be studied along with other greeks. However, its much easy to eye ball IV and do a quick check of option prices.

 

[mohan.sic]

Obviously, you have never paid much attention to IVs. What else would you compare of different strikes if not IV? The option has only 2 things. Intrinsic value and a premium. The premium is nothing but IV along with time value for expiry for this option.

All strikes are equally priced. Nothing cheaper/costlier than other strikes. (difference in prices/iv's are due to difference in strike distance from Spot) - - - You are not correct here. All strikes are not equally priced. Options routinely get mis-priced and there will be strikes which become cheaper/expensive in a trading day. If all strikes were equally priced then we would not have any need for IVs. Moreover, you are implying that all option strikes will move the same way which is not the case.

Compare present IV's of a particular strike to IV's of the same strike of previous day, and that will give a fair idea if options are cheap/costlier comparatively. - Again you are not correct. Yesterday's IV is now HV. Cant compare today's IV with yesterdays HV. Implied Volatility is future looking and not into the past. For ex IV of 11600 put yesterday will not be the same if market today trades at 11500. So, how can you compare with yesterday's IV? Comparing apples and oranges?

For most of the traders, this iv values is not really useful. Some basics are enough to avoid getting into traps.----Again, this is not correct. IV is a very useful tool for a buyer to see how options are priced. For example. Assume Underlying is at 11880. For a 11800 strike with 14 days to expiry and an IV of 9.6, a put option will up by over 18% if IV went up by 10%. Similarly, a call option would change by close to 5%... other things remaining the same.

IV is not a single measure to determine cheap/expensive options. It has to be studied along with other greeks. However, its much easy to eye ball IV and do a quick check of option prices.

After reading your post, especially when you think that previous iv is now hv, I think that I have to write a very detailed post to give you clarity. will do it in weekend. thanks.

 

[lemondew]

previous day IV is future expected price yesterday.

HV is actual deviation based on underlying price.

 

[Smart_trade]

HDFC Life is slowly going up without anyone noticing it...it goes up 1-1.5 % every day...

ST

 

[Riskyman]

After reading your post, especially when you think that previous iv is now hv, I think that I have to write a very detailed post to give you clarity. will do it in weekend. thanks.

Please do. I will be delighted to learn from you .

previous day IV is future expected price yesterday.
HV is actual deviation based on underlying price.

Historical volatility is past. It has no bearing on Implied volatility. Much like how yesterday's IV has no bearing on today's IV. Why? Because if yesterdays volatility had any bearing then todays options would be priced at election day's volatility or brexit day volatility. Right? Election gone.. brexit gone..yesterday gone. Market only looks at future events to build IV. Yesterdays events have no bearing.

 

[against_tides]

lagta hai 11850 bhi gayo

 

[lemondew]

I read analysts saying the following strategy for US markets.

Saying and checking it is different.

If someone can arrange data for following
Get combined premium of nifty ATM options at close on every day basis. When the premium is higher than average we sell it and hold it till expiry for simplistic backtesting. check the combined premiums at same strike at expiry

Ideally one can close it when in good profit. .

We need the combined premiums of 6-8 100 point different strikes ATM to otm for last 3 years.

After reading your post, especially when you think that previous iv is now hv, I think that I have to write a very detailed post to give you clarity. will do it in weekend. thanks.

Please do. I will be delighted to learn from you .



Historical volatility is past. It has no bearing on Implied volatility. Much like how yesterdays IV has no bearing on today's IV. Why? Because if yesterdays volatility had any bearing then todays options would be priced at election day's volatility or brexit day volatility. Right? Election gone.. brexit gone..yesterday gone. Market only looks at future events to build IV. Yesterdays events have no bearing.

 

[Riskyman]

I figured out is compare the combined premium of ATM prices calls/puts this expiry with the combined premium of the last 20- 30 expirys with the same number of days to expire left.
I couldnt find so much data on options.

We need the combined premiums of 6-8 100 point different strikes ATM to otm for last 3 years

Again, this is not the correct way. Your statement is assuming that market today is where it was 20-30 expiry ago? Was Nifty the same 20-30 months/weeks ago? or even 3 years ago. If not, you cannot use this logic.
This is why you cannot find the data

 

[lemondew]

Sorry boss. Market in 2014 was different (6000 - futures) than in 2019. But its standard practice to backtest futures from 2014 to 2018 to trade in 2019. The prices dont matter actually the objective is to find situations where many times a certain tendency exists. That becomes a good probability trade. High probability = high probabily of certainty if its executed without fail for a good number of times.

Again, this is not the correct way. Your statement is assuming that market today is where it was 20-30 expiry ago? Was Nifty the same 20-30 months/weeks ago? If not then you cannot use this logic.
This is why you cannot find the data