Hey moe!!!
First of all – what a cool, intelligent, awesome question!!!! One of the best I’ve seen and I hope others chime in on this as well.
For clarification for newer option players, IV refers to “implied volatility” which is the estimated volatility in the future. HV is “historical volatility” which is historical data on volatility in the past.
First question:
1. The price of an option is a better deal when the IV is below the HV.
You may get different answers on this , but IMO you cannot make such a generalization. Month to month things change with a particular stock and also their options. Take earnings for example – you’ve already seen how this can skew volatility, so if they announce this week it will affect IV and skew from recent history – the same thing next month but just skew it in the opposite way - I realize that often HV will have an adjustment to compansate - but not all earnings reports are equal!!!. Also, remember that when we have a mrkt wide change of perception re mrkt direction, that too will affect IV of your particular play. Often we see IV increase when mrkts are turning bearish – opposite also true. Possibly skewing results again, along with any change within the industry (maybe competitor is getting sued/investigated/ruling etc.) – we’ve all seen how this can affect others both positively and negatively in the past. There are other instances/scenarios that I could go into, but you get the idea – that is, while your general statement is often correct, it may indeed not be the case many other times as well. The “best deal” is often when you see the future more clearly than others who see it differently.
Second question:
2. Buying an option when the IV is closer to its 52 week low is giving you a better price on the option.
Again, it is the generalization that I have to disagree with. As a general statement (when comparing “apples to apples” ), often it is true. But again can be influenced by many things that can give it a skewed look.
So to wrap things up for this post – I love how your mind works and encourage you to continue down this investigatory path, as when you see IV/HV relationships skewed from your perception of the future it can add even more gains to your play – heck, it can even give you green on a play that should have turned red for you. Just avoid a mindset that things are “always this or that” – that is where you’ll find extra profits!!!
One last side note – a couple of HFT’s are constantly probing a number of stocks/ETF’s options for exactly these types of plays. Understanding that you cannot “click” as fast as them will avoid some frustration for you. Where we have the advantage is when we perceive events to turn out differently in the future – the exceptions to the rules pay off bigger! And HFT’s still have difficulties when looking to at HV and understanding onetime events or something else that knocked things “out of whack” – big opportunity for us when we see that!
Oh yeah – on the free site question – no idea….just Google away until you find one I guess, unless someone else can help????
Hope this helps?
AI
