Volatility Charts

Finding trends, plus over- and under-valued options to buy and sell

Volatility is a vitally important consideration in options trading.

Every asset has quiet periods when its options are cheap, and volatile periods when its options are expensive. Professional options traders are always aware of current volatility levels in relation to historical context. To gain that perspective, they view historical volatility charts.

With up to six years of statistical and implied volatility for most optionable assets in the U.S., these unique Volatility Charts help you:

• See the "normal" volatility range, for modeling.
• Identify patterns (e.g., seasonal) which you can take advantage of.
• Find issues whose options are chronically over- or under-valued.

The Survey scanning feature on this site scans this same volatility data to provide you with trade candidates which may meet your trading parameters.

Using Volatility Charts

Historical volatility information is pulled from the Background Data Base maintained by OptionVue Systems.

To open a volatility chart, select an asset in the Quotes Display and click the Volatility Chart button. Up to six years of volatility history are shown. You can zoom in and out to view more history or increased detail of recent activity.

With the Volatility Chart open, you can also enter another symbol and select the corresponding asset type to view another chart.

Title Section
The title section of the chart contains some important information. Next to the header description of the asset and its symbol are the DVO, SV, and IV figures.

DVO
This stands for Dollar Volume of Options traded, and is an average of the last five trading days. It is a daily figure expressed in thousands, and provides a value of liquidity.

SV and IV
The Statistical Volatility (SV) and Implied Volatility (IV) figures are expressed as percentiles. If SV had a reading of 78, it means that the current SV reading is higher than 78% of the past 6 years of SV readings. If the IV was 93, it means the current IV reading is higher than 93% of the past 6 years of IV readings.

Interpreting and Using Volatility Charts
The Volatility Chart displays two lines - one for statistical volatility (SV) and the other for implied volatility (IV). The SV line (solid, dark red) represents, at each point, an exponential average of the underlying’s daily price volatility over the previous 20 trading days. The IV line (dashed, blue) represents, at each point, one week’s average implied volatility.

In other words, the SV line shows you the actual volatility of the asset, while the IV line shows you the volatility implied by the price of the options of that asset. They should normally be fairly close together. If they are not, it would indicate the price of the options is not reflecting the actual volatility of the underlying asset. Such noticeable variations can be easily viewed to allow you to find assets whose options are chronically under- or over-valued.

Volatility Charts are also useful for determining what “normal” volatility is. This can help you profit when current volatility temporarily goes much higher or lower than in the past. It can also be useful (depending on the asset) for spotting patterns or cycles in volatility you can take advantage of.

The table at the bottom of the chart displays the averages for statistical and implied volatilities over the last 3 weeks, 6 weeks, 10 weeks, 1.5 years, 3 years, 4.5 years, and 6 years. This allows you to see precisely what the average volatility for this asset has been over a time period, rather than just eye-balling the chart.

Seasonal Volatility
Volatility Charts can also help you spot patterns in volatility. In Soybeans, for example, a seasonal pattern is evident. Every spring and summer, the soybean market becomes volatile. These volatile periods are interspersed with quiet periods.

You can profit from this by being long Soybean options going into the spring, and being short Soybean options as the summer draws to a close. (Be careful with short positions, they must be tended carefully.)

At times, implied volatility and statistical volatility appear to be in close agreement, while at other times one soared way above the other. This too creates opportunities.

WARNING: You should always be aware of current news on the assets you are trading. Sometimes events can overwhelm historical and seasonal volatility patterns.

Also, be careful of situations in stocks where implied volatility is high and statistical volatility is extremely low. Find out if there is a takeover deal on the table. These deals often freeze the target company’s stock in a narrow trading range for a while. Meanwhile, the options may maintain high premiums because of the possibility of a sudden change in the deal.

In general, unusual events (for example, droughts or company buyouts) can be treacherous for options traders - be careful!

Price Charts & Put/Call Volume Charts

Identifying Trends to Make Predications on Market Direction

Price Charts and Put/Call Volume Charts give you an opportunity to see a history of where an asset has traded over the past few years so you can project where it’s likely to trade in the near future.

Simply select an asset in the Quotes Display and click the Price Chart button.

Price Chart Intervals
The chart defaults to a daily bar chart (each bar is one day), To view a weekly chart, click on the Weekly radial button, and then click Draw. To view monthly, click the Monthly radial button, and click Draw. You can see up to a decade of price history in monthly mode.

Viewing Other Charts
If you want to view a chart of a different security, in the “Enter Symbol” field, simply enter your desired symbol and click Draw. This will bring up your requested chart.

Asset Type
To differentiate between equities, indices and futures, in the “Select Asset Type”, choose the value which best describes the type of asset you wish to chart.

Put/Call Volume Chart Settings

Data to be Charted
Select from P/C (Put/Call) Ratio, Puts, Calls, or Puts+Calls to view the volumes of each respective grouping

Volume
Select D.Volume (Dollar Volume), Volume (Contract Volume), or Open Interest to view your preferred volume reference.

Range
In the # Days field, enter a numerical value from 1 to 40 to represent the cumulative history you wish to chart.

Average
Choose a simple running average, or an exponential running average of the previous 1-40 days

These charts can display historic Put/Call data back to November 20, 2000.