6. Options and the volatility desk

Reading volatility

Skew, term structure, realized vol, IV rank and the VIX.

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  • 4 lessons
  • 17 min
About this section

Volatility has a shape and a history: across strikes (the skew), across expiries (the term structure), against what the stock actually did (realized), against its own past (IV rank), and across markets (the VIX family).

What you will be able to do

  • Read a volatility surface, a smile and a skew (OVDV).
  • Read realized volatility and where it sits in its own range (HVG, HVT).
  • Tell whether implied vol is high or low for a name, and rank a list (HIVG, VCA).
  • Read the VIX curve and the cross-asset volatility board (VIX, VOLS).

Five words to know

smile / skew
implied vol plotted across strikes; usually higher for low strikes
term structure
implied vol plotted across expiries
IV rank
where today's IV sits between its 52-week low (0) and high (100)
cone
the range realized vol has taken over different windows
VIX
the market's 30-day implied volatility of the S&P 500
  1. 01The volatility surface and skew (OVDV)Implied volatility changes with the strike (the skew) and with the expiry (the term structure), and OVDV fits the whole surface from option quotes.4 min
  2. 02Realized volatility and the cone (HVG, HVT)HVG charts realized volatility over windows from 10 to 260 sessions, and HVT (the cone) places each window's current value in its own range over the past year or two.4 min
  3. 03Is implied vol high or low? (HIVG, VCA)HIVG charts a stock's implied volatility history with IV rank and percentile, and VCA ranks a list of tickers as rich, fair or cheap on those and a few other clues.4 min
  4. 04The VIX and volatility indices (VIX, VOLS)The VIX is the 30-day implied volatility of the S&P 500, and VIX and VOLS show its curve across horizons and its cousins in bonds, oil, gold and single stocks.4 min

Educational material about reading market data, not investment advice.