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sir i reasearched a lot on IV and i have some questions :
1. Is indian options IV is calculated by back solving Black sholes formula or some other model
2. for intraday , IV depends on spot price and premium of that option so how IV analysis is different from premium decay analysis.
3. i observed change in IV of both CE and PE but i didnt find any pattern in it for eg:sometimes IV of both increases and market move up and sometimes reverse happened.
4. are we concerned only with change in IV or we have to look at the initial value also to get a idea about direction
5. do we have to consider volatility skew ?
6.how we will know that sharp move is factored in IV or not
if possible pls provide the formula of IV that NSE use to calculate it ???
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I would like to add one more question to it:
IV of calls more than puts. I have seen that market for the time being goes up and then falls down badly. September was the month when this was done frequently until the govt announcement. Is this thing done to trap call writers or making way for premium eaters? -
Dear all iv is forward looking volatility this type of volatility results from mkt price of options that trade on underlying. A result of increased buying of options by mkt participants is higher iv.When there is net selling of options the iv decreases.
This is not the potential direction of the underlying just the magnitude of the move.
When the mkt anticipates that a underlying may soon move dramatically the price of option contracts both put n call will move higher. -
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3. IV is function of how frequently option is traded.
It should be analysed with help of OI —-
PE IV is going up and CE OI is increasing and This increase should be opening of new contracts then market should go up.
CE IV is going up and CE OI is increasing and this should be new opening of contracts then market should go down.
This is at the money observation.
Out of the money PE should show decay if INDEX needs to go up.
Out of the money CE should show decay if INDEX needs to go down. -
It would be erroneous to conclude anything with only the changes in IV.
We should also analyse the positions that are being closed. So, if the LONG positions are getting closed and the IV rises, the market will fall. Inversely, if the SHORT positions are getting closed and the IV rises, the market will rise.
But, for both the rise and the fall of the market, they should be supported by volumes. If the moves are not supported by volumes, they might indicate STOP LOSS hunting. Be aware of it.
But, even if the moves are supported by volumes, we should also consider the amount of movement in Nifty as compared to the actual volume against average volume. If the actual volume is quite high as compared to the average volume (lets say, actual volume was around 3 times as compared to the average volume) but Nifty moved only 10-15 points (but if the actual volume was that high, Nifty should have moved around 25-30 points), it indicates that some big players exited and Nifty might move in opposite direction. Keep an eye on that as well. -
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It is a very nice question, Would like to add one more observation. I have been recording the data on a daily basis on my excel based IV system. What I have found that maximum times premium and spot move in the same direction. If spot goes up then call premium goes up and put premium goes down and if the spot goes down then put premium goes up and call premium goes down. Then based on premium how do we decide a reversal.
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You cannot just judge on only one day observation . You have to observe it daily then only you can make a conclusion . And you can’t only look at Iv and premium but the change in OI and see if it is Increasing/Decreasing . As sir have said 100 times you have to do 360 Degree analysis then only you can make a right conclusion.And rest of your questions are answered in the youtube videos.
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Nitin Sir, Kindly reply on these questions asked above. I am also having same observations. I saw almost all videos and live streaming of IV on the YouTube channel but did not find any answer. The import question is when we observe the IV and find its correlation with NIFTY, there is no definite pattern, I could observe. Sometimes it give some spikes and then it cools down in next 5-10 minutes. Overall it seems rangebound. What is the entry and exit criteria basis on this ? Thanks in advance
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