Drop in volatility?

[rhmt01]

Hi

Has anyone noticed the big drop in volatility in just the last week?

I was just doing some sums based on volume/volatility estimates from the 21 August figures from the ASX website and comparing them to the IV for current ATM (or close as) options.

HDR from 83% to 68/62 (call/put) for sept and 53/59 for dec
SSX from 81% to 50/30 for sept and 31/29 for nov
OXR from 77% to 37/42 for sep and 43/47 for oct

 

[barney]

Howdy rhmt01, I fairly new to options etc but V interested. How do you gauge the volatility? (software required?) Is the affect of this volatility sector related or do you find it trends across the whole market in general at the same time? (Also is the options volatility/or lack of, an indicator of the upcoming market sentiment/trend or does the market trend before the options?) Cheers.

 

[Magdoran]

Hi

Has anyone noticed the big drop in volatility in just the last week?

I was just doing some sums based on volume/volatility estimates from the 21 August figures from the ASX website and comparing them to the IV for current ATM (or close as) options.

HDR from 83% to 68/62 (call/put) for sept and 53/59 for dec
SSX from 81% to 50/30 for sept and 31/29 for nov
OXR from 77% to 37/42 for sep and 43/47 for oct

Hello rhmt01,


Looking at IV movements over the past 6 months, certainly, some sectors have had very volatile IV with significant swings, certainly in the materials sector.

You have certainly picked the more volatile of sectors and stocks out of the optionable ASX stocks. Interestingly, the XJO IV has been fairly consistent while all of this is going on.

The IV in HDR has certainly been volatile in line with WPL, but OSH and STO have been much more consistent and less volatile in IV (Crude Oil Movements may precipitate and increase in IV against the recent falls).

SSX has certainly had major changes in volatility ranging from the 12 point range in calls to 129 points in puts months later as a range. This is quite unusual for the Australian market, and probably reflects the takeover event with the volatility of the steel industry. BSL and OST certainly came down in volatility significantly and have been very volatile in the IV levels.

In the Gold sector, there has certainly been a significant drop post the strong blow off move where gold futures topped, then corrected hard driving IV very high in OXR, LHG, and NCM. Interestingly all roughly halved from their IV tops, but OXR seemed to range the most from around the 100 point range down to 50 points…

Other stocks like BHP and CBA have also had these sweeping peaks in IV and a subsequent fall in IV levels.

These moves are consistent with the IV shifts during tops and corrections, followed by a period of sideways trading. But you have chosen quite volatile areas, and where there is strong price action and media events the IV can range quite high, and then fall quickly when the price action is less volatile and news events are common knowledge and factored…

The point you make though illustrates how important it is for options traders to be aware of IV and the potential affects it can have on their positions.


Regards


Magdoran