StockFetcher Forums · Stock Picks and Trading · Follow The Money (Options)<< 1 ... 27 28 29 30 31 >>Post Follow-up
18 posts
msg #142778
Ignore BoCap
3/16/2018 11:30:58 AM

Pham , may i have your email again plz...

47 posts
msg #142788
Ignore lavapit315
3/17/2018 2:50:06 AM

So is this thread dead or will others still post what you see? I'll try and post but would like others to verify also. It won't be kept up like Pham did as he was exceptional at it.

Pham, any chance you continue this after getting settled in at new place?
Thanks for all the time you put into it.

5,087 posts
msg #142794
Ignore four
3/17/2018 10:30:39 PM

Problems with Implied Volatility Calculations

Traders relying on implied volatility (IV) to time trades are relying on a deeply flawed calculation.

The debate over whether to use implied or historical volatility is pointless. The one (historical volatility, or HV) is based on actual stock prices in the recent past. The other (IV) is an estimate of future option volatility based on assumptions that are not accurate. In other words, HV and IV are not different ways to calculate the same thing’ they are entirely different.

An assumption often heard among options traders is that implied volatility leads price, but the opposite is true. Volatility in the underlying price (HV) determines IV as a direct result. And while IV serves as a sentiment indicator, it does doe reveal the direction of movement, contrary to popular belief.

To arrive at IV, the use of a risk-free interest rate is involved. This is an elusive and theoretical rate that does not exist in the real world. The U.S. Treasury bond rate often is used for this, but given the potential for rapidly changing market rates, this is not risk-free in a real sense.

An even bigger problem with IV is that it uses the midpoint premium value between bid and ask. This value is never applicable, since buyers pay the ask and sellers receive the bid. The midpoint is meaningless. It is also inaccurate because the wider the spread, the higher the distortion between bid/ask and the midpoint for each side of a trade. One study of this concluded that:

… small price movements in very low-priced options can lead to large percentage increases in the bid-ask midpoint, while these price movements are still in fact less than the bid-ask spread itself. Therefore, in many cases, using the bid-ask midpoint as the option premium leads to a large positive return, while using the original ask and the subsequent bid leads to a negative return. [1]

The IV is acknowledged as a measurement of market sentiment and opinion, and for that it provides value. Measuring likely volatility through indicators like the VIX is helpful if the underlying assumptions (notably risk-free interest rate) are applied consistently. However, that mid-point between bid and ask distorts the outcome. It would make more sense to perform the calculation twice, once for buyers based on the ask, and once for sellers based on the bid. The midpoint is a nonexistent “price” that does not apply to either buyers or sellers

Some traders rely on IV and its calculation to estimate probability for an option ending up in or out of the money. This seems like a worthwhile calculation to perform. However, because it relies on an artificial risk-free interest rate and an unreliable midpoint between bid and ask prices, the probability itself is also inaccurate.

Problems with IV calculations present one of the many inaccurate assumptions that go into option pricing, estimates of volatility, and calculations of probability. Since all of these are inaccurate, it makes historical volatility look like a far more reliable method for judging the current volatility level and whether it is increasing or decreasing. This is easily viewed on a stock chart by overlaying Bollinger Bands. The bandwidth itself serves as one form of historical volatility and presents an easy solution to the problem of trade timing.

[1] McKeon, R. (2013). Returns from trading call options. Journal of Investing 22(2), pp. 64-77

Dorothy Klocek

47 posts
msg #142797
Ignore lavapit315
3/18/2018 6:53:45 AM

Hers my pick for Friday's close
TSM 18-May-18 45P 5,000 bought at $1.80 Total Trade Value $900,000


47 posts
msg #142798
Ignore lavapit315
3/18/2018 7:49:02 AM

Also anyone here use ThinkOrSwim and willing to help with option scanning? If so I'llpost my email address to communicate. Thanks

5,944 posts
msg #142800
Ignore shillllihs
3/18/2018 1:22:05 PM

This thread was fun to observe, but that doesn’t change the fact that it’s taking gambling close to its lowest level. Options are risky, with time decay and the such. Just think, you could simply go long TQQQ in a trending market and do very well without any stop clock on your trade and minimal research.
Not saying that this thread is not interesting.
Just my thoughts.

18 posts
msg #142804
Ignore BoCap
3/19/2018 12:53:01 PM

i'm on Think or Swim
email me at

1,065 posts
msg #143028
Ignore mahkoh
4/3/2018 2:36:15 PM

Massive $ 150 million trade on MON 128 April 6 puts, expiring just after earnings call on Apr 5, It's a new position, MON at 116.68 at that time. Traded at the midpoint, but if i had to guess I'd say they were bought.

161 posts
msg #146385
Ignore 15minofPham
2/2/2019 12:50:22 AM

There's unusual options volume and there's UNUSUAL options volume. A trader yesterday bought 16,200 DBX Jan 2020 60 Calls for .20. A head scratcher is that it closed at $24.71 yesterday which means this trader thinks it's going to go up 2.5x in 11 months. Another 1760 was bought today bringing the Open Interest to 17,276. Does he/she know something, like a buyout? Hmmm...

648 posts
msg #148097
Ignore sandjco
6/10/2019 8:15:25 AM

Hi Pham!

For CALLs - does a BUY at "BID" mean any different than a BUY at "ASK"? one more "bullish" than the other?

Thanks in advance

StockFetcher Forums · Stock Picks and Trading · Follow The Money (Options)<< 1 ... 27 28 29 30 31 >>Post Follow-up

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