Implied Volatility SuiteThis is an updated, more robust, and open source version of my 2 previous scripts : "Implied Volatility Rank & Model-Free IVR" and "IV Rank & IV Percentile".
This specific script provides you with 4 different types of volatility data: 1)Implied volatility, 2) Implied Volatility Rank, 3)Implied Volatility Percentile, 4)Skew Index.
1) Implied Volatility is the market's forecast of a likely movement, usually 1 standard deviation, in a securities price.
2) Implied Volatility Rank, ranks IV in relation to its high and low over a certain period of time. For example if over the past year IV had a high of 20% and a low of 10% and is currently 15%; the IV rank would be 50%, as 15 is 50% of the way between 10 & 20. IV Rank is mean reverting, meaning when IV Rank is high (green) it is assumed that future volatility will decrease; while if IV rank is low (red) it is assumed that future volatility will increase.
3) Implied Volatility Percentile ranks IV in relation to how many previous IV data points are less than the current value. For example if over the last 5 periods Implied volatility was 10%,12%,13%,14%,20%; and the current implied volatility is 15%, the IV percentile would be 80% as 4 out of the 5 previous IV values are below the current IV of 15%. IV Percentile is mean reverting, meaning when IV Percentile is high (green) it is assumed that future volatility will decrease; while if IV percentile is low (red) it is assumed that future volatility will increase. IV Percentile is more robust than IV Rank because, unlike IV Rank which only looks at the previous highs and lows, IV Percentile looks at all data points over the specified time period.
4)The skew index is an index I made that looks at volatility skew. Volatility Skew compares implied volatility of options with downside strikes versus upside strikes. If downside strikes have higher IV than upside strikes there is negative volatility skew. If upside strikes have higher IV than downside strikes then there is positive volatility skew. Typically, markets have a negative volatility skew, this has been the case since Black Monday in 1987. All negative skew means is that projected option contract prices tend to go down over time regardless of market conditions.
Additionally, this script provides two ways to calculate the 4 data types above: a)Model-Based and b)VixFix.
a) The Model-Based version calculates the four data types based on a model that projects future volatility. The reason that you would use this version is because it is what is most commonly used to calculate IV, IV Rank, IV Percentile, and Skew; and is closest to real world IV values. This version is what is referred to when people normally refer to IV. Additionally, the model version of IV, Rank, Percentile, and Skew are directionless.
b) The VixFix version calculates the four data types based on the VixFix calculation. The reason that you would use this version is because it is based on past price data as opposed to a model, and as such is more sensitive to price action. Additionally, because the VixFix is meant to replicate the VIX Index (except it can be applied to any asset) it, just like the real VIX, does have a directional element to it. Because of this, VixFix IV, Rank, and Percentile tend to increase as markets move down, and decrease as markets move up. VixFix skew, on the other hand, is directionless.
How to use this suite of tools:
1st. Pick the way you want your data calculated: either Model-Based or VixFix.
2nd. Input the various length parameters according to their labels:
If you're using the model-based version and are trading options input your time til expiry, including weekends and holidays. You can do so in terms of days, hours, and minutes. If you're using the model-based version but aren't trading options you can just use the default input of 365 days.
If you're using the VixFix version, input how many periods of data you want included in the calculation, this is labeled as "VixFix length". The default value used in this script is 252.
3rd. Finally, pick which data you want displayed from the dropdown menu: Implied Volatility, IV Rank, IV Percentile, or Volatility Skew Index.
Modelfreeimpliedvolatility
Implied Volatility Rank & Model-Free IVRThis is an update to my previous IV Rank & IV Percentile Script.
I originally made this script for binary/digital options, but this also can be used for vanilla options too.
There are two lines on this script, one plotting Model-Based IV rank and Model-Free IV Rank.
How it works:
Model-Based IV Rank:
1. Take whatever timeframe you're using and multiply it by 252. This is done because typically IV is calculated over a year, which has 252 days. But this can be used for any timeframe, so just multiply you're timeframe by 252. In the picture above I'm using a 30 min chart, so I multiplied 30 min by 252 and got 7 days, 14 hrs , and 30 min.
2. Next input the result you got from step 1 into the corresponding input boxes.
3. Then input the timeframe you are using into the input box labeled timeframe. I'm using 30 min so I put 30.
4.Finally choose the delta that you want to use and input its standard deviation into the input box. There is a list of common deltas and their corresponding standard deviations in the menu so you don't have to go looking them up. Typically 16D or 1 standard deviation is used when calculating IV, but you can choose whichever one you want.
*FYI. For people trading binary/digital options, the delta of a vanilla option is the same as the price of a binary/digital option. This is because the delta is the first-order mathematical derivative of the vanilla option's price, and a binary/digital option is a mathematical derivative of a vanilla option. So when you see the list of deltas and their corresponding standard deviations values, just know that 40D=$40 binary, 30D=$30 binary, 20D=$20 binary, and so on. But again typically the 16D or $16 binary's standard deviation value would be used*
This calculation of IV rank is useful for vanilla option traders who use Tradingview and don't have access to this metric.
This calculation of IV rank is useful for binary/digital option traders using Tradingview because the only two regulated binary options exchanges: the CBOE and Nadex, do not offer advanced options data, such as IV rank. On the CBOE and Nadex only the market-makers have this data, which they get from their own in-house pricing models. So at least now any binary option traders can have the same data as the market makers that they are trading against. Also if your wondering how accurate my pricing model is; just know that I have have compared the prices given by the pricing model to realtime prices on Nadex (live account) and the prices that my model shows for differing strike prices matches the prices that the market-makers set. So the pricing model, upon which this IV rank is based, is accurate.*
Model-Free IV Rank:
This IV Rank is based off the VixFix and just ranks the VixFix's values over the past 252 periods. In the menu you can see the recommended periods for calculating the VixFix, with 22 being the one most people use. This is the exact same methodology used in my original IV Rank script.
Which should you use?
This is up to you and each have their own pros and cons.
The main pro of using the model-free version is that because it does not rely on a pricing model, it does not take as many steps to calculate IV and therefore can update its IV projections much quicker than the model based approach. This is why if you zoom out the model-free version will have a more choppy appearance than the model based.
The main pro of using the model based version is that this is what the overwhelming majority of options traders use, and can be applied to any option delta you want, while the model-free version only calculates IV rank on the 16D aka $16 binary aka 1 standard deviation strike.
