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OPTIONVUE: Which is Better: EIOIO or Var 1 Day For Volatility

Discussion in 'Options' started by Rod M, Nov 20, 2014.

  1. Rod M

    Rod M Well-Known Member

    I am soliciting opinions on where to set the Volatility Settings in OptionVue. Where do you set yours and why ? I tend to go back and forth and compare the two. If I understand correctly, EIOIO is Each Option On Its Own and Var 1 Day tends to average out the vols of the entire trade, so I guess that makes EIOIO more granular. Comments and Opinions ??

    thanks...rod
     
  2. Kevin Lee

    Kevin Lee Well-Known Member

    Rod,
    I use Variable and True Delta. I find that the T+0 line and delta are much more accurate in modeling actual P&L. For example - in TOS/ONE, which uses EIOIO, position delta is positive and vega negative. But in OV with var + true delta, position delta can actually be negative. Almost always, OV turns out to be more accurate in predicting P&L when market moves.
     
  3. Rod M

    Rod M Well-Known Member

    Thank you, Kevin. These are the settings I have been using and they seem to be aligning themselves closely with my IB balances. However, I do still bounce between EIOIO and Var for comparison purposes. Thanks again.
     
  4. Kevin Lee

    Kevin Lee Well-Known Member

    Another setting that has significant impact on the T+0 line and greeks - "Use combined Call/Put skew". I set it to Checked as recommended by John Locke. It does make the modeling far more accurate.
     
  5. ACS

    ACS Well-Known Member

    One of my posts in the M3 thread in the options forum has a picture of the OV settings that John Locke recommends.
     
  6. RayM

    RayM Well-Known Member

  7. Len Yates

    Len Yates Active Member

    I agree with the comments. I'll just add a little bit. With the EIOIO model, the IV for each option is calculated without regard to other options IVs or prices, and is projected to remain the same into the future. This model has one big advantage – it gives you very nice looking graphs perfect for educators teaching option strategies to their students. The disadvantage is that it is not accurate. Option IVs change, and they do so in systematic ways that can be modeled. I could go into detail but it would take several paragraphs and it would probably not be appropriate to do that in a forum. We incorporated the EIOIO model into OptionVue several years ago so users could switch to it for comparison purposes. However, it is best to use our sophisticated Variable Volatility model.
     
  8. ACS

    ACS Well-Known Member

    Thanks Len for the comments. Perhaps you could do a webinar for us some time that goes into the issue in greater detail?
     
  9. tom

    tom Administrator Staff Member

    I had the same thought and already invited Len. He's busy this month but we are trying to find a day in January to delve into this more deeply.
     
  10. GreenZone

    GreenZone Well-Known Member

    You'll get much more accurate modelling using variable variance (CEV) rather than EIOIO.
     

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