Trading Group 2 - March 14, 2017

Discussion in 'Round Table Presentations' started by status1, Mar 18, 2017.

  1. status1

    status1 Well-Known Member

    As you know I started this thread because I liked Paul Demers's presentation where he built his own risk analyzer so I was curious as to what it would take for anyone who is not so experienced to build one
    Than I just happened to mention about the problem I was having with the Black Scholes formula and with the help from other members here I was able to make it work
    So I am glad I was able to accomplish at least that part
    1 Are you tying to match TOS greeks? Well that would be great next step which I could not have done without knowing what goes into the Black Scholes formula
    2 Why can't you just change IV? I am not sure what you mean Change it to what ?
    3 How do you evaluate your forwards (how do you evaluate that your greeks are ok)? I am not sure what you mean by forwards but I am trying to look at the greeks next (baby steps)
     
  2. Marcas

    Marcas Well-Known Member

    Thanks, I noticed this and, for now, it no issue for me, so here I'm good with TOS.
    I let you know about my quest for TOS API. I only heard it is/was hard to get rest is from their webpage - sounds very ok. We'll see.

    About your RTD play, I regret but I can't help it is little out of my reach and also little out of my focus at the moment.
     
  3. Marcas

    Marcas Well-Known Member

  4. garyw

    garyw Well-Known Member

    Marcas: That referrers to the TDA API, NOT a TOS API. I have the TDA API, which is not being actively supported. The relationship between TDA API and TOS is loosely linked. Trades which occur within TOS are propagated to TDA after market close. The TDA API is the very old and not supported TDA interface. You can obtain updated positions via TDA, but they are delayed until after market close and do not contain proper execution timestamps. -- I use this when I do not require accurate time of trade reporting. --- Note TDA purchased TOS, but a TOS API was never provided for users. -- If you have conflicting information, I would be very interested! -- BTW: I use the TDA API for trade history only at present!
     
  5. Marcas

    Marcas Well-Known Member

    Me to, and I'm working on something similar not copying Paul's sheet. I want to see data I need.

    I think I think I might get it : ) It is exercise.
    My thinking is if TOS greeks are not so good then why to try to copy them rather than work on better ones. Question is what 'better ones' mean and how to verify that new greeks are better. The only method I know is to compare what greeks predict with real data and this requires... some work.

    I'm not working on models leaving it for future. Sure I implement some model in my program but it will be mostly to try keep consistency so I can compare greeks over time (as opposed to greeks calculated by somebody else where somebody else may change model in fly).

    By changing IV I meant change it so to get right price.
    As I said. I'm watching this tread and I'm learning with you.
     
  6. Marcas

    Marcas Well-Known Member

    Oh! I wast talking with TOS and they gave me this link and e-mail I intend to use. I suppose you have better info then. I will contact them anyway because access to historical data is valuable to me as I don't want to deal with big database yet.
     
  7. garyw

    garyw Well-Known Member

    FYI: I was using BSM to reproduce option prices and observed the IV surface results of my calculation to try to get a feel of whether I was accurately representing the IV for the PUTs and CALLs. I observed anomalies in the IV surface that suggested a huge flaw must be present. The graphs would produce multiple inflections (an indication something is amiss), or the CALL VS PUT IV surface would have differing shapes. Many of these "issues" would coincide with the TOS view of the same at the time (suggesting I was making similar error to TOS). I had three big issues with my values that I was providing to BSM (1) Interest rate, (2) Yield, (3) spot price. My underlying is SPX. I referenced Steve S.'s paper on "U" derivation, and these three issues now seem resolved. My solution required marshaling the option chains, which I do. (He addresses solutions for I interest rates, as well as formulas for "U" which include -PDIV.) While I may not be spot on, I am much closer than previously (and closer than TOS for my usage)
     
  8. Marcas

    Marcas Well-Known Member

    Thanks garyw. I don't want to go into details as I'm not ready yet.
    Do I understand correctly that goal here is to achieve right balance between Puts and Calls (means to get similar IV on both sides and be darn close to real prices)?
    And then, if we have this balance within our formula, does that means that we are close to _right_ greeks (means greeks that predicts options prices behavior with acceptable accuracy)?

    I don't intend to interrupt thread flow , but I have another question: talking about bad greeks from TOS are we taking about IndVol or VolSmile or both?
     
  9. Paul Demers

    Paul Demers Well-Known Member

    I have been watching this thread with interest. It is my humble opinion that you will never find the right greeks that will predict any type of future options behavior. How are you going to be able to create a formula to know what the future pricing of each option is going to be or how the skew curve is going to move?
     
  10. Marcas

    Marcas Well-Known Member

    I'm leaning to your position, and for now I don't care much about greeks accuracy (the way I.m trading), but I don't mind to have right greeks that can predict where the prices will be with such and such price and IV movements. My t+x lines will have more value.
     
  11. onyxperidot

    onyxperidot Well-Known Member

    Hi Paul,
    I am inclined to agree with you. Although we cannot predict its shape, the skew may predict something else uselful. 10 years ago, somebody had studied the reliability of options vol skew in predicting their underlying equity future returns.
    The paper is here:
    https://drive.google.com/file/d/0B9fPLkdZBZT6cmhrUUFWNkU4S2s/view?usp=sharing

    Myron
     
  12. Paul Demers

    Paul Demers Well-Known Member

    The key word I picked up on in your comment was "predicting". That is the best that you can expect from any type of model. I guess the point I was trying to make is the fact that the greeks of a position and the resulting T-0 line are just a model and are accurately predicting what the pricing and greeks would be if the underlying price was different at that moment in time. What is going to happen to that position going forward in time is just a prediction based on the current model and nothing more.
     
    Last edited: Mar 27, 2017
  13. onyxperidot

    onyxperidot Well-Known Member

    I can't agree with you more.

    In bringing up the paper, I was just suggesting that it may be easier to predict stock prices with the skew curve than to predict options prices and their Greeks. And IMHO, trying to exploit the volatility surface may not be worthwhile for small retail options traders trading 10 lots butterflies. Even some professional traders are not that enthusiastic in playing the volatility surface anymore. I had been told that the skew slope accounts for less than 10% of total volatility risk. Most of the risk is attributed to the general level of volatility. i.e. the volatility surface may as well be flat as originally predicated by the BSM for practical intents and purposes.
     
  14. garyw

    garyw Well-Known Member

    Marcas: I am unaware of access to "historical data" via the TDA API. You can access your trade history via the API.
     
  15. Marcas

    Marcas Well-Known Member

    garyw, I only read what www says:
    Streaming data - Level I, Level II,
    Historical data - Daily and intraday

    that is all I need. If, as you say, it doesn't work... well, what a pity. I'll see if they want to charge me for that.
    thanks
     
  16. garyw

    garyw Well-Known Member

    Hm! They do seem to state that! If anyone gets that to work for accessing historical intraday option pricing, I'd appreciate a heads-up. Would be of interest.
     
  17. Ryan Simmen

    Ryan Simmen Well-Known Member

    This basic calculator from IVolatility is nice because it fills in the interest rate and dividend yield based upon the expiration date. Does anyone know how they are calculating the values for these two fields?
     
  18. Steve S

    Steve S Well-Known Member

    If you look at their data notes, I believe they state that they use Libor for shorter dates and swap rates for DTE > 1 year, which are ok but not really "good" in general.

    However, there appear to be some bugs in their script: Looking at July and December I'm seeing very wrong rates (way too low). June and May are consistent with Libor but Libor is a chunk lower than what the market makers are using.

    Their yields appear to be constant for different DTEs, which means they are again "barely ok" but not "good". SPX yield appears to be just the same value you can get from a million google hits.
     
  19. Ryan Simmen

    Ryan Simmen Well-Known Member

    What are all the market makers using?
     
  20. Steve S

    Steve S Well-Known Member

    I don't have expert knowledge there ... I tweak my rates so the forwards make sense, but when DTEs get shorter than a couple of months it's impossible to draw a bead ... but for those DTEs accurate rates don't matter. Actual rates were way over Libor for the last year until Libor started rising; by late last year they were much closer for shorter DTEs; right now Libor is probably quite good for DTEs out to 6 months and a little high for months like Dec. Actually, looking at the latest Libor curve I kind of take back what I said ... Libor is pretty darn good right now for the DTEs most of us trade ... but that's accidental; if you look at recent history Libor has definitely been too low, and if you look at periods when rates were much higher Libor tends to be too high.
     

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