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RupeeCase Learn/Path 16/Beginner

Volatility

Historical and implied volatility, India VIX, IV rank and percentile, events and IV crush, smile and skew, term structure, forward volatility and surfaces.

  • 16modules
  • 159 minof reading
  • 30question path test
  • Freewith a certificate
Start at 16.1See the stops

01The line

16 stops, 16 live.

Volatility is the price of an option in another unit. How it is measured from past prices and implied from premiums, how India VIX is built, and why one number never describes the whole smile.

0of 16 done on this device

  1. 16.1Volatility: historical against impliedTwo numbers called volatility, one from past returns and one from a price. What each measures, and why they differ7 min
  2. 16.2India VIX for beginners: what it measures and what it does notA thirty day price of movement, quoted as a yearly percentage. How to turn it into a range, and why it never tells you which way8 min
  3. 16.3Solving for implied volatilityThe option price is known and the volatility is the unknown. How a solver finds it, where it fails, and why two screens can differ9 min
  4. 16.4IV rank and IV percentile, done properlyTwo yardsticks for the same implied volatility. One reads two days of a window, the other reads all of them9 min
  5. 16.5Measuring realised volatility: four estimatorsFour ways to measure how much the index moved, and why one day can move a realised volatility figure twice9 min
  6. 16.6Events and IV crush: results, Budget, RBI and electionsOptions price a known event before it happens and hand the price back once it is out. Here is how that looks in Nifty data9 min
  7. 16.7Smile and skew: a first look at Nifty and stocksEqually distant options do not cost the same. The curve of implied volatility across strikes shows how, and why one number never fits8 min
  8. 16.8Skew measures: risk reversal, butterfly and slopeA smile is a picture. Three numbers read at a fixed delta turn it into something you can compare across days, expiries and underlyings10 min
  9. 16.9Term structure and event varianceEvery expiry carries its own implied volatility. Read as total variance, the set of them shows where the market expects the movement, and what one day was priced at10 min
  10. 16.10Forward volatility from two expiriesTwo expiries give two vols. The volatility between them is not their average. It follows from total variance, and it is the number a calendar spread leans on10 min
  11. 16.11India VIX rebuilt step by stepIndia VIX is not an at the money implied volatility and not a model. It is a sum over a strip of options. Here is the sum, rebuilt, and where it differs from NSE's10 min
  12. 16.12Forecasting volatility: EWMA, GARCH and HARThree ways to turn past returns into a forecast of volatility, and a scorecard that shows how often simple forecasts miss11 min
  13. 16.13The variance risk premium in NiftyImplied volatility sat above what followed in ten of fourteen windows, and the four others gave most of it back10 min
  14. 16.14Variance swaps and replicationA variance swap pays realised variance less a strike. A strip of options, weighted by one over the strike squared, prices it. Nothing here is listed in India, but India VIX is the same sum13 min
  15. 16.15Volatility surface models: SVI, SABR, local and stochastic volA chain is a set of points. A surface joins them without leaving an arbitrage. SVI and SABR draw one expiry; local and stochastic volatility add dynamics, and each fit has limits13 min
  16. 16.16Skew dynamics: sticky strike against sticky deltaThree rules say how the smile moves when the index does, and each gives a different hedge ratio. On the largest days in an NSE file, volatility moved further than any of them13 min, path test

02Outcomes

What you will be able to do.

  • 01Compute realised volatility from daily closes
  • 02Back out implied volatility from a settlement price
  • 03Tell IV rank from IV percentile, and say why they can disagree
  • 04Read a smile and a term structure from one dated chain

03Certificate

Pass the path test.
Keep the proof.

  1. 1Read the modules and try each quick check (optional)A pass gives that module's own certificate
  2. 2Take the 30 question path test21 correct to pass, drawn from 240 questions
  3. 3Get the certificateWith an ID and a QR code
Jump to the path test About the certificates

04Questions

About Path 16.

What does Path 16, Volatility, cover?

Realised and implied volatility, India VIX and how it is built, IV rank and percentile, events and the fall in IV after them, the smile and skew, the term structure, forward volatility and surfaces.

Is India VIX a fear index?

India VIX is a 30 day volatility measure that NSE builds from option prices. It rises when options are priced for larger moves in either direction; it does not say which way.

Should I read Path 14 first?

Yes. Implied volatility is read from option prices, so the premium and the Greeks in Path 14 come first.

Explore next

Where to go next.

Before this pathPath 14: Options and GreeksBeginner, 17 modules Pillar guideDerivatives and Quant115 modules F&O on RupeeCaseHedging only, in developmentProtection for a portfolio you own, by a published rule

Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.