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Avraham Sakal
2023-10-15 20:15:45 -04:00
parent 9dec57681f
commit 74f1358386
2 changed files with 5 additions and 4 deletions
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README.md
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@@ -1,8 +1,9 @@
Choose Underlying Choose Underlying
Choose Quote Date (i.e. from which point in time are you running the analysis)
Choose Strike Choose Strike
For each front-mont-back-month combination: For each front-month-back-month combination:
Lookup the cost to open the position Lookup the cost to open the position
At the front month's expiration, the back-month will have a certain DTE. Determine what IV the back-month will need in order to offset this cost. At the front month's expiration, the back-month will have a certain DTE. Determine what IV the back-month will need in order to offset this cost, for all possible underlying prices.
Determine the 30-day lo-hi range for IV, normalized for distance-from-the-money and time-to-expiry. Determine the 30-day lo-hi range for IV, normalized for distance-from-the-money and time-to-expiry.
In other words, a naive 30-day-lo-hi isn't informative, because maybe it was low due to long time-to-expiry, or high due to distance-from-the-money In other words, a naive 30-day-lo-hi isn't informative, because maybe it was low due to long time-to-expiry, or high due to distance-from-the-money
Normalize the IV that was determined to yield a profit, and see if it's higher than the bottom of the lo-hi range. If it is, it's safe; the only way to lose is for it to end-off having a lower IV than the 30-day record. Normalize the IV that was determined to yield a profit, and see if it's higher than the bottom of the lo-hi range. If it is, it's safe; the only way to lose is for it to end-off having a lower IV than the 30-day record.
src/util.ts
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@@ -22,7 +22,7 @@ function erf(x) {
} }
// produced by ChatGPT // produced by ChatGPT
export function calculateImpliedVolatility(optionPrice, underlyingPrice, strikePrice, timeToExpiration, riskFreeRate, optionType, maxIterations = 100, tolerance = 0.0001) { export function calculateImpliedVolatility({optionPrice, underlyingPrice, strikePrice, timeToExpiration, riskFreeRate=0.03, optionType='call', maxIterations = 100, tolerance = 0.0001}) {
let iv = 0.5; // Initial guess for implied volatility let iv = 0.5; // Initial guess for implied volatility
let epsilon = 1e-6; // Small value to avoid division by zero let epsilon = 1e-6; // Small value to avoid division by zero
@@ -76,7 +76,7 @@ const timeToExpiration = 0.25; // Example time to expiration (in years)
const riskFreeRate = 0.03; // Example risk-free interest rate const riskFreeRate = 0.03; // Example risk-free interest rate
const optionType = 'call'; // Example option type ('call' or 'put') const optionType = 'call'; // Example option type ('call' or 'put')
const impliedVolatility = calculateImpliedVolatility(optionPrice, underlyingPrice, strikePrice, timeToExpiration, riskFreeRate, optionType); const impliedVolatility = calculateImpliedVolatility({optionPrice, underlyingPrice, strikePrice, timeToExpiration, riskFreeRate, optionType});
console.log('Implied Volatility:', impliedVolatility); console.log('Implied Volatility:', impliedVolatility);
*/ */