New Options Backtester
Search, filter, and sort 65,640,607 backtests

Indicators

Monday, February 25th 2019

Our Most Popular IV is Constant Maturity Implied Volatility. How we calculate it.

How ORATS calculates our popular interpolated implied volatility reading. It is also called a constant maturity implied volatility and we show it both with and without earnings effects taken out.

Summary

ORATS calculates its most popular IV point, the interpolated implied volatility reading, by taking a weighted average of the two at-the-money implied volatilities of the two expirations around the constant maturity days. They show 10, 20, 30, 60, 90, 180, and 365 calendar day interpolations both with and without earnings effects taken out. The formula uses the 50 delta implied volatility less the earnings effect of the month weighted to find the interpolated implied volatility.

ORATS most popular IV data point is our interpolated implied volatility reading. It is also called a constant maturity implied volatility. We show 10, 20, 30, 60, 90, 180 and 365 calendar day interpolations both with and without earnings effects taken out.

We calculate these by finding the two expirations around the constant maturity days and taking a weighted average of the two at the money implied volatilities.

Let's take an example of the 60 day ex-earnings interpolated implied volatility = 55.5% for TSLA on 1/4/2019.

 

 

The 2/22/2019 expiration has 50 days and 3/15/2019 has 71 days to expiration.

We use square roots of time so the total difference from the sqrt of 60 days or 7.7 is 1.35 = Abs(60days ^ 0.5 - 51days ^ 0.5) + Abs(60days ^ 0.5 - 71days ^ 0.5)

We use the 50 delta implied volatility less the earnings effect for the month weighted to find the 60 day ex-earn implied.

55.5 = (1.35 - Abs(60days ^ 0.5 - 51days ^ 0.5)) / 1.35 * (59.4 - 4.3) + Abs(60days ^ 0.5 - 51days ^ 0.5) / 1.35 * (58.9 - 2.9)

Note that if there was not an earnings effect for a month, the formula would use the 50 delta implied volatility less the earnings effect of zero. Here's how we remove earnings from implied volatility.

Still have questions on how interpolated implied volatility works? Here's a video to help explain this further:

Contact Us
Curious about enterprise pricing? Want to become an affiliate? Questions about our data? Let us know.
Your email
Your message
Submit
ORATSORATS
Institutional Quality Tools for All Options Traders
(312) 986 - 1060
support@orats.com
36 Maplewood Ave, Portsmouth, NH 03801
Trading Tools
APIs
Historical Data
More Information