3.3.4 Volatility Spreads

3.3.4.1 V-Spreads Overview

The Volatility Spread Scanner is a useful tool for volatility trading, allowing the user to identify stocks with either the largest at the money (ATM) implied volatility (IV) difference relative to historical volatility (HV) or the smallest difference for the 10, 30, 60, and 90 day values. For example, a stock in the 10 Day list with a value of +30% means that the 10 day ATM IV for that stock is 30% higher than the 10 day HV. Differences between IV and HV can be interpreted in two ways: (1) the market anticipates that the future volatility of the stock price is going to dramatically change from the current level, or (2) market participants have made bets on future volatility that are not coming to fruition and thus are pressuring that position with outsized losses. The scanner allows you to explore the stocks that represent those two possibilities to the most extreme.

3.3.3.2 Controls

The top controls allow the user to vary the number of stocks to include in the result count, filter by a positive difference between IV and HV or a negative difference, and filter by ascending or descending. The ascend/descend filter and which timeframe is indicated by the up or down arrow located next to each Day header in the 4 boxed lists. For example, using the positive filter and applying descending sort on the 10 Day spread, the top of the list shows stocks where 10 day ATM IV is significantly above 10 day HV. Clicking on 30 Day, 60 Day, or 90 Day then applies the sort to those forward expirations, depending on what timeframe is of interest.