options volatility, page-7

In an ideal world, we would track the ATM call and put, and one strike price above and below the money. I only followed the ncp Apr 10.50 call (and put), checking the price once per day at random times. I split the bid/ask exactly half way to assume what the call would sell for, and record the underlying stock price at that time of day.

The results of all this show that if you use calender days for BSOPM, you get IV that are BELOW the 20dayHV ! , which doesnt make sense.
If you use trading days, then you see the IV are higher than 20dHV and that the relationship (as a %) surges when ncp goes up, and that IVs fall and calls get cheaper when ncp moves down.This is more like what you would expect.

Its a bit hard to follow in this post, so I'll email SD the spreadsheet. The main figure to watch is the last one- the % above HV that IVs are when you use trading days.
Of course the numbers look a bit out as we get close to expiry, when in fact a call that is only a few cents overpriced, looks to be 70-90% IV.

I think this supports my arguement that the market makers use trading days when selling, and its just a little trick that they hope we wont find out about.

I wish we could post spreadsheets here on HC.
Anyone else wants a spreadsheet, just leave your address here.


NCP Apr 10.50 calls;

date, cal days to exp, ncp, call, HistVol20, CdaysIV, %diff, trading days to exp, Tdays IV, %diff.

18-Mar, 36, 10.73, 0.750, 0.5370, 0.4258, -21%, 25, 0.5508, 3%
(so if you use 36 days to expiry, you get IV of .4258, and if you use 25 days to expiry you get IV of .5508. Now as ncp HV20 is .5370, which figure do you think is more correct?)
20-Mar 34 10.92 0.860 0.5438 0.4603 -15% 22 0.5818 7%
(ncp rises a bit, and the trad d hv is now only 7% above HV, whereas cal d hv looks to be below HV20 by 21%. If you were about to buy calls, you might think this call is a bargain, but it isnt.)
21-Mar 33 11.27 1.115 0.5388 0.4758 -12% 21 0.6141 14%
25-Mar 29 10.62 0.625 0.5051 0.4572 -9% 19 0.5722 13%
27-Mar 27 10.89 0.770 0.5355 0.4575 -15% 17 0.586 9%
28-Mar 26 11.12 0.950 0.5417 0.4905 -9% 16 0.6362 17%
31-Mar 23 10.78 0.630 0.5461 0.4306 -21% 15 0.5406 -1%
1-Apr 22 10.60 0.510 0.5452 0.4286 -21% 14 0.5452 0%
2-Apr 21 11.14 0.870 0.5282 0.4463 -16% 13 0.5782 9%
3-Apr 20 11.47 1.100 0.5360 0.4194 -22% 12 0.5582 4%
4-Apr 19 11.18 0.870 0.5246 0.4352 -17% 11 0.5823 11%
7-Apr 16 11.64 1.225 0.5291 0.4379 -17% 10 0.5739 8%
8-Apr 15 11.71 1.305 0.5211 0.4942 -5% 9 0.6545 26%
10-Apr 13 11.02 0.750 0.6316 0.5303 -16% 7 0.7329 16%
11-Apr 12 10.64 0.420 0.6081 0.4403 -28% 6 0.6308 4%
15-Apr 8 11.16 0.720 0.5211 0.4013 -23% 4 0.5844 12%
16-Apr 7 11.23 0.800 0.5228 0.4897 -6% 3 0.7647 46%

and no I didnt make a profit on the straddle. Lucky I made enough on cba to offset ncp, and closed it all out.