Tuesday, June 21, 2005

Low Implied Volatility in CSCO

I was tempted to close my QQQQ put trade several times today, for no good reason other than that I just feel bullish. Today I noticed the guy at Hedging Options wrote " Unbelievably, CSCO atm July 20 calls are at a 15 IV", so I loaded up CSCO in my new program for ranking a stock's past historical volatilities. I set it to load the past 1000 trading days:

Current Historical Volatility (as of June 17th)
20 day: 19.64%
50 day: 20.22%
100 day: 20.5%

Past Historical Volatility:
Rank % 20day 50day 100day
0th 13.01 18.8 20.5
10th 21.65 23.59 26.86
20th 26.85 28.81 31.01
30th 29.64 30.65 33.28
40th 33.1 33.75 34.25
50th 36.69 37.37 35.03 <--- this is the median
60th 43.24 40.53 38.13
70th 49.78 54.85 57.83
80th 57.82 65.41 66.19
90th 69.26 72.26 68.73
100th 107.76 83.09 72.44

The 50th percentile ranking is the median volatility. The program confirms what hedging options said...those CSCO calls are trading well below typical volatilities for CSCO. The guy at hedging options uses more complicated strategies than I usually do. I think he generally enters delta neutral positions with positive gamma, and then scalps against the gamma. I don't have any experience with that and am not interested in giving it a try at this point. Just as an experiment though, I bought 1 July 20 Call contract for 30 bucks just for the hell of it. Let's see if it goes up now! (This isn't exactly a high probability trade.)

If I ever get the option data imported into my database I'll do some real expiriments. I'm really interested in backtesting some long gamma, long volatility strategies as well as building a useful screen for finding puts to sell. My copy of McMillan on Options just arrived from Amazon.com. McMillan's other book Options as a Strategic Investment is hands-down my favorite options book. It's almost always on my desk, so I'm really looking forward to reading this book. I'll post a review when I'm done.


At 10:20 PM, Blogger QUANTster said...

Thought you might find this interesting...


At 8:43 PM, Blogger Bob said...

At least somebody else took a look at that, I couldn't beleive it when I saw it at 15. It made me somewhat bullish so my position is somewhat as you describe. Basically I bought a bunch of the 20s and sold some 17.5 calls against them, but I'm leaning long. Also, we got a gift when Cramer went nuts on his show today saying buy the stock.

At 11:07 AM, Blogger Quant Trader said...

Great Call! It makes me wish I had a bigger stake in this trade.


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