historic volatility

  1. 1,368 Posts.
    So whats the latest thinking on Hist volatility, guys?

    I just read the excellent thread in the metastock forum.
    I couldn’t get the simpler formulas to work, either. Seems my software (proTA for mac) doesn’t like ‘Stdev(ref/ref-1)’, but I did manage to break it down to 3 stages as suggested by Gypsy King. Great work GK!
    Now I have hist vols for ncp, for eg, in a chart. The past work in excel, only gave me the 20,50 and 100 day hist vola for today, without showing where it had been in the past. Now I can see it visually.
    Like Rem, I had it all in excel for a long time, and hadnt got around to charting it in software, until now. Yes, Im taking a break from US markets, and testing trading systems on some aussie data just for fun. Blue chips with liquid options, of course.
    So it looks like this;

    bottom part is 21day Hist Vola
    And after writing all the formulas and checking them against excel (step by step) I needed a good lie down, too. So many possibilities.…so many numbers…my head hurts.

    OK, so now what?
    I looked at multiple HVs by using fib numbers, and you can see the turning points, and get a much better idea where the true options market is going.

    red is 15, orange is 21, yelow is 34, green is 55,ly blue is 89,dk blue is 144day hist vola! sort of like multiple moving averages.

    It looks pretty, and I suppose I could write a formula that alerts me when the 15 d crosses the 21 d for eg.
    If youre trading options, your want to be buying when HV is low and due to rise, and selling when HV is high and about to fall, that’s the general idea of what Im trying to create. It must be automated and a formula, or its not a trading system, its just making it up as you go along.
    So Im thinking simple trendline anaysis of the 20 day HV is the go.

    It looks easy in hindsight. Anyone done any work in metastock for trendline break formulas? Can it be done at all?

    Anybody think Im on the wrong track? Its just an idea Im exploring. The research alone is worth it. I think I’ll end up trading IV against HV as Richard suggested. Ive been working on that idea for a long time already. This is just a sideline. Ive seen a new USA system that looks for patterns that are due to break out, and then buys straddles on the options. Aims to make 30% per trade, on 1 trade per mth, claims 85% succes rate,(yeah, right...) which I have not substantiated, but I am impressed by the system called Cobra Strike. Once we find a few buy indicators, I need to calculate what price the ul would need to move by, to show a tradable profit in a straddle. Straddles are the ideal vehicle to trade volatility IMHO. I dont care if it goes up or down, as long as it moves.
    Of course, money management will be in there somewhere as well. Im not saying its possible, it may only show a 5-10% profit yet, but Im looking for 60%plus accuracy first.

    Thoughts and comments welcome.
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