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Modeling IV rise in TOS

Discussion in 'Options' started by Jim Hardy, May 17, 2016.

  1. Jim Hardy

    Jim Hardy Member

    I'm sure this must be a really dumb question, but I'll ask anyway.

    When trying to model an IV rise in the Analyze tab, TOS asks for a percentage figure. If I enter, say, 5.00%, is that the same as the VIX roughly going from 12.00 to 17.00? I don't think so, because TOS is not asking for "points" but rather a percentage. But a 5% rise from 12.00 should only be up to 12.60, correct?

    Thanks in advance for helping me screw my head on straight.
  2. Capt Hobbes

    Capt Hobbes Well-Known Member

    True, in the ideal world everyone would consistently say "points" to mean the absolute vol value and "percent" its relative change. As in "the VIX increased by 10% from 20 points to 22." But in reality, it's common to express volatility itself as a percentage value, so "points" and "percent" become the same. Just like you point out, that makes something like "volatility increased by 5%" ambiguous, and you just have to find out what it means. In the Analyze tab in TOS, they mean the absolute percent (points), so +5.00% does mean kind of like the VIX going from 12 to 17. "Kind of" because what they do is simply add 5% to the IV at each strike, while in the real market if VIX goes up 5 points, IVs at strikes don't all increase by the same amount. So the actual t+0 line after a 5 point VIX increase will look different from what TOS shows when you enter 5% in the "Vol Adj" box.
    Al G. likes this.
  3. Jim Hardy

    Jim Hardy Member

    Thanks for your response, Capt! It's making more sense.

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