What high quality implied volatility data and analytics can do for your business

Professionals working with options know the importance of reliable data to support their decision making process. Qualitative implied volatility data is an essential ingredient for you to find opportunities within this complex but lucrative science.

Every option in the market contains an own implied volatility that, amongst others, determines the option's premium price. Strangely enough, the volatility of options for a given stock on a specific day can vary, even if the expiry date is the same and only the strike differs.

An easy way to arrive to one objective measurement is working with the average implied volatility. This metric is a weighted average of the implied volatilities of all the actual listed options for an underlying value.

Although average implied volatility gives a good view on how volatile the market sees this security, there are many more interesting analytics that help you find hidden option treasures.

The implied volatility surface for a security might be one of the most important tools in option trading as it gives you an overview of the average implied volatility of a given security on a specific day, but varying over strike price and term to expiry. Consequently, a volatility surface pinpoints bias in the market towards a put or a call option for a given security, also known as skews. Trading the skew can lead to rewarding opportunities when tackled correctly.

Furthermore, comparing the average implied volatility of an option to historical data for this option gives you a good idea of how high or low the current volatility is. This information can form the basis for your trading strategy. For example, if the current implied volatility for a given security is low compared to the implied volatility over the last years, traders should avoid writing options and vice versa.

These implied volatility analytics can be a trader's best friend if the data that feeds them is of good quality.

Often, the available implied volatility data does not include all quotes for skew and maturity which results in incomplete volatility surfaces.

Although there are market data suppliers that provide maturity enhancement to up to 10 years, historical data of up to 15 years back and broad skew enhancements of at-the-money strikes; this is rather an exception then a rule. Other times, the data is not regularly updated during a trading day or does not include all options available on the worldwide markets.

Regardless if you are active in the front, middle of back office of a financial institution, incomplete and unreliable data can pose a risk.

Not only market-makers, flow and volatility traders, but also professionals in risk management, structuring and valuation depend on high-level implied volatility data.

Financial service firms have received increased scrutiny over the last several years by regulatory authorities. Risk manager are therefore more than ever obliged to develop reliable predictive models and foresee in the impact of daily trading decisions. This means they need high quality, independent volatility data on equity options to feed forecast models and stress tests.

Issuers of structured products on the other hand use option market data to build their product and highly depend on implied volatility to set its price. To determine the value of the product at any given time, the issuer builds a financial model using implied volatility of the underlying entities.

Finally, finance professionals valuing the balance sheet require high-quality data to value asset classes at their current market prices. By using reliable and independent implied volatility data, compliance regulators understand this is done at a market-consistent approach.

At Drebbel, we understand how important qualitative market data is for your business and how it can make or break investment opportunities.

That's why we work together with a reputable partner offering the best implied volatility data and analytics out there.