A Better Implied Volatility Rank and Percentile Indicator

Bard · Fri, 18 Oct 2019 10:21:22 +0000

Hi, I think this would be a very useful addition to the library and am wondering if it is possible to code an Implied Volatility Rank and Percentile Indicator that can be based on Williams’ Vix Fix? It would be particularly beneficial for Currency, Indices and Options traders but can be applied to most markets. The PRC version of the indicator was posted here: https://www.prorealcode.com/topic/indicator-request-for-nic/ Can it also be programmed so that it can find tops as well as bottoms, — i.e. instead of just having a fear barometer when Put Premiums are rising sharply, also have a greed barometer for Call Premium rises and potential market tops)? I was hoping we could have an indicator like this one I found on Trading View (linked below) so it shows not just the IV rank but also the Percentile (so it’s scaled by 100%)? Unfortunately the code is locked on Trading View but I am hoping it isn’t too far of the version I linked to above on PRC. https://www.tradingview.com/script/Z30icKNi-IV-Rank-IV-Percentile/ “This indicator is meant to be a substitute for Implied Volatility Rank and Percentile for traders who do not have access to readily available options data. This indicator is based on the William’s VixFix which is an indicator that mirrors the VIX , which charts the implied volatility of the SPX . The great thing about the VixFix is that it can be applied to any security, not just the SPX . IV Rank is calculated by taking the highest and lowest values over the past however many periods you choose, and seeing what percentage of the way between those values the current IV value is. For example if over the past 5 periods the highest IV value was 30 and the lowest IV value was 10, and the current is 20; then the IV Rank would be 50% because 20 is 50% of the way between 10 & 30. IV Percentile is calculated by looking at all of the past values, not just the highest and lowest, and seeing how many of those values were below the current. (IVP tells you the percentage of time that the IV in the past has been lower than current IV). For example lets say over the past five periods the IV values were : 30,10,11,15, & 17; while the current IV value is 20. As stated before the IV Rank would be 50%, while the IV Percentile would be 80%, given that 4/5 of the values were below the current IV value of 20. IV Rank and IV Percentile are often wrongly used interchangeably, but as shown here they are very different. Most people use IV Rank as their main options tool; while IV percentile is a great way to give IV Rank context. Whichever you choose to use, or even both, does not really matter as long as you use either one or both consistently. IV Rank and IV Percentile are mainly used in this way: when IVR/IVP <50, buy options, when IVR/IVP >50 sell options. The reason that you buy options when IVR/IVP is low is because IV is mean reverting, so you would expect IV to eventually start increasing towards the mean, causing prices to move. The reason you would sell options when IVR/IVP is high is because IV is mean reverting and you would expect IV to decrease towards the mean, causing prices to move sideways. In this script there are two lines, one denoting IVR and one denoting IVP . IVR is the line which is green when it’s above 50 and red when below 50. IVP is the line which is aqua when above 50 and orange when below 50.“ Also, I was wondering why “pl” is set at 1.01 instead of 0.15 and I also do not get the green histogram bars (mine are all grey despite color code within indicator) on the ProRealCode version mentioned above? Thanks very much, Cheers Bard.

This topic has 22 replies, 2 voices, and was last updated 5 years ago by Vonasi.

Tagged: implied, implied volatility, percentile, VIX, volatility, wvf

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10/20/2019 at 5:40 PM #110648

Bard

Because of the 1 std deviation Black Scholes risk free rate for implied volatility, it was in my “information overload” post 😀

Bard

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10/21/2019 at 1:37 PM #110702

Vonasi

Here is the TradingView code from your information overload’ post converted to PRT to give the log version (I was able to convert it by guessing how TradingView code works!) I have scaled it between 0 and 100 rather than the 0 and 1 that the original code uses.

//Historical Volatility Rank

Length = 20
annualVol = 365
periods = 7// 1 = intraday chart 7 = daily chart

Price = log(close / close[1])
sigma = std[length](Price)
HVol = (sigma * sqrt(annualVol / periods)) * 100
lowVol = lowest[annualvol](HVol)
HVrankUp = HVol - lowVol
maxVol = highest[annualvol](HVol)
HVrankLow = maxVol - lowVol
HVR = (HVrankUp / HVrankLow)*100

return HVR coloured(0,0,255)

//Historical Volatility Rank

Length = 20

annualVol = 365

periods = 7// 1 = intraday chart 7 = daily chart

Price = log(close / close[1])

sigma = std[length](Price)

HVol = (sigma * sqrt(annualVol / periods)) * 100

lowVol = lowest[annualvol](HVol)

HVrankUp = HVol - lowVol

maxVol = highest[annualvol](HVol)

HVrankLow = maxVol - lowVol

HVR = (HVrankUp / HVrankLow)*100

return HVR coloured(0,0,255)

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Bard

Vonasi

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10/21/2019 at 11:14 PM #110764

Bard

Cheers for coding this HV Indicator @Vonasi. Surprisingly there wasn’t as much difference as I expected between this and the simpler formula here:
https://www.prorealcode.com/topic/historical-iv-calculation/#post-79858

I would be able to give more feedback on these indicators that I’ve added to PRT but for the fact that a couple of hours of work on them was lost this weekend because when I logged into PRT this morning the Vix Fix, HV, Implied Volatility Rank and Percentile indicators have disappeared from my indicators list… even indicators I know were definitely saved — because I closed them and re-opened them to add them to a different chart — have gone? This isn’t the first time this has happened! I am re-adding them now and playing around with them.

One thing I couldn’t figure and wondered if you could, is what would be the correct way to write the opposite of the high volatility market bottoms code for the IV? In other words if the Vix Fix for high volatility market bottoms is:

WVF = (Highest (Close,22) - Low)/(Highest(Close,22))*100

1	WVF = (Highest (Close,22) - Low)/(Highest(Close,22))*100

What would be the opposite of this equation to denote low volatility market tops? I tried with replacing the highest with lowest and the low with high but can’ t show screenshots as the indicator vanished, it also wouldn’t highlight the specific bars in green even though I thought I’d mirrored/reversed the code correctly.

Were you able to access the C# code from Ninza that I dropboxed? Ultimately it would be great to have a version of that high and low volatility bar graph indicator and have a percentile rank.

I use this chart, screen attached, which is what I would like to see in PRC arsenal of indicators, it’s from ivolatility via the Options Council website
https://www.optionseducation.org/toolsoptionquotes/historical-and-implied-volatility, it’s a line graph of the HV v’s the IV. Other vendors like Barchart also supply IV 30, IV 60 and IV 90 comparisons.

I found Fidelity’s definition of HV: https://www.fidelity.com/learning-center/trading-investing/technical-analysis/technical-indicator-guide/historical-volatility

“An annualized one standard deviation of stock prices that measures how much past stock prices deviated from their average over a period of time.” Formula attached in the screenshot. I’m not sure this is what we have with these two HV codes (the one above and the one at post-79858)?

I’ll stop now in case your brain is getting an “information overload” warning again! 😃

Bard

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10/21/2019 at 11:16 PM #110766

Bard

Screen #1 didn’t attach?

Bard

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10/21/2019 at 11:36 PM #110770

Vonasi

Bard wrote:

I’ll stop now in case your brain is getting an “information overload” warning again!

Yep – the alarm bells were ringing quite early on in that one!

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10/21/2019 at 11:42 PM #110771

Vonasi

I think that if you find a specific indicator and can provide the other language code for it then it is best if you just submit a code conversion request for it to Nicolas via the normal route. I personally don’t have the time to read every page that you provide a link to and then try to work out what it is you want from the information on that page and then try to adapt the information I have read to what you want. Sometimes a simple, straightforward request of ‘can someone convert this to PRT’ achieves more than a mass of information overload. Just a polite suggestion 🙂

Vonasi

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10/22/2019 at 1:29 PM #110829

Bard

Yes, no worries and I do appreciate the help! I found the subject was more complicated that I first thought, mainly because I thought the versions of IV and HV posted in PRC were accurate but I’m now unsure that in fact they are (excluding Williams’ Vix Fix as that is how he intended it). I don’t think what’s on this forum approximates to an accurate HV/IV indicator as mentioned above and at the end of my last post. That was what was concerning me and why I posted the HV equation in case anyone with a better understanding could figure out an accurate HV indicator.

What is the normal route, I’ve always gone to the indicator forum and posted there/here?

Re: Providing code, could you not access the C# code for the Ninza indicator and image from dropbox? It is the code that is the Ninza image posted above and which plots the barchart from the centre and shows the high and low volatility. If you could guide me on the opposite of this equation code I posted directly above, to get that low volatility reading, I think I can get it to work (although it wouldn’t highlight in green). It may end up as two separate charts though unless I can figure out how to format the barchart so it shows both negative and positive ranges for high and low volatility respectively. I did attempt it but only got the barchart to show either the high vol or low vol but not both together as per the Ninza image. Probably a simple fix. May I post that double (high vol / low vol) version here?

There was a good reason Black, Scholes and Merton won the Nobel Prize for coming up with their options pricing model that predicted the future probability and pricing of asset prices! Option pricing, historical and implied volatility are crucial in that understanding and I believe it would be a great addition to the get the definitive version up here on the PRC forum.

Cheers
Bard

Bard

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10/22/2019 at 3:13 PM #110845

Vonasi

The normal procedure for a free indicator conversion is via this link that can also be found under ‘Help’.

https://www.prorealcode.com/free-code-conversion/

The reason for this is to put all the information in one place, code, indicator description and images so that the person doing the conversion (usually Nicolas) does not have to waste a lot of time working out what they are supposed to be creating.

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Nicolas,

Bard

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