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HI SIR AND FRIENDS…how to do normalization of premium decay if the strike prices are not equidistant from the current market price..For example if market is at 11000, i am considering 11100ce and 10900pe…but if the spot price increases/decreases ,how to normalize premium decay value???Along with this iam considering highest oi strike price on both call and put side for premium decay and change in IV,pls correct me if im wrong…
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For normalization, you have to assign weightage..It is not linked to particular strike price. You should assign highest weightage to ATM contract and if your judgment is that market will move up then give relatively high weightage to call side OTM contracts and low weightage to put side OTM contracts. However, the weightage of ATM contract will be always highest on both the sides.
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