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Dear all,
I've been using QuantConnect for about a week now, and what really attracts me is the ability to backtest using historical option EOD chain snapshots. Part of my research plans to analyse the volatility skew at EOD. To that end, I've written an Algorithm to retrieve historical data, then storing it in QuantConnect's ObjectStore for further analysis using the research notebook.
With the above code, however, I've been getting IVs that differ by 2-4% between call and put ATM options (delta close to 50). I suspect that the pricing model might be using the Last price instead of the Mid, which would be inaccurate if the option was not traded frequently prior to market close. However, I have no way of confirming this suspicion. Has anyone encountered a similar issue, and how did you resolve it?
Louis Szeto
Hi Matthew
The IV is calculated from the Price of the option, but this should not be an issue since L1-data is used.Â
It is very normal that IV of a put is larger than IV of its corresponding call by a few percent. It is because puts are in higher demand for hedging purpose. This drives the price of puts slightly higher than its theoritical price (depends on models, but most are ignoring the supply-demand relationship), thus a higher IV implied by its price.
Best
Louis
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Matthew
Hi Louis,
Thank you for referring me to QuantConnect, and thanks for the response. If L1 data is used then this shouldn't be an issue… appreciate the clarification! All the best for your Capstone.
Warm regards,
Matthew
Matthew
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
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