Generalizing the implied volatility skew into parameters is a good way to get an overall view of the surface. Comparing the parameters to history, to related stocks or to ETFs is a good way to see what part of the skew might be overpriced. For example, if the slope is steep and other stocks or ETFs are not, the put IV might be overpriced relative to calls.

To drill down to the specific areas on the implied volatility skew, the use of delta buckets to categorize implied volatility can be helpful. ORATS breaks down each expiration into 21 volatility buckets from 100 delta to 0 delta every 5 deltas.

Here's a picture of XLK from 5/22/19 delta bucktest of IVs:

null

We call this our Monies (short for money-ness) part of the Data API. Trial

Monies are available each trading day back to 2007.

Tracking areas of the volatility surface using delta buckets can help identify areas of over or undervalued parts of the skew.

More reading:

How to Set Up a Pairs Trading Backtest

Term Structure of Implied Volatility

related posts

Is Selling Options Still Worth The Risk? IPS Strategic Capital Cites ORATS Backtesting Data
Oct
08
Volatility, Backtesting, straddle, spx

Is Selling Options Still Worth The Risk? IPS Strategic Capital Cites ORATS Backtesting Data

"Selling premium is alive and well and money continues to pour into these strategies, which...

Read Post
Meet Matt Amberson Of ORATS At BattleFin London
Sep
18
Volatility, Forward Volatility, technical indicators, data api, BattleFin

Meet Matt Amberson Of ORATS At BattleFin London

Matt Amberson will be representing ORATS at BattleFin London on September 25th and 26th in the...

Read Post

We're here, if you need us.

Still curious how we can help you?




LET'S CHAT