Manual Volatility

Last modified 18:34, 2 Nov 2012

Manual Volatility

Volatility for each option series is calculated by Your SOFTWARE using price data and the model settings selected by the user.

Occasionally, a user will want to substitute a system generated volatility level with a manually created one, perhaps to test a pricing theory with one of the user’s current strategies, or to correct a known data corruption.

To enable manual volatility values throughout Your SOFTWARE is a two step process:

  • Select the Use Manual Volatilities check-box in the Volatility Type selection area of the Option Model dialog box, then
  • Manually enter the Volatility levels for individual options and option classes

For most options-related work-pages, the function bar's Action menu provides links to the two dialog boxes.

After applying the manual changes throughout Your SOFTWARE, the original volatility settings can be returned to by using the Delete settings buttons at the bottom of the Volatilities dialog box.

Enable Use Manual Volatilities in the Option Model Settings

The first step is to open the Option Model dialog box and change the volatility type used throughout Your Software in its pricing model calculations.

From the Action menu or other location, select the Option Model command: comnd_model.png

The Option Model dialog box will open:

postns_usemanulvols.gif

Check the Use Manual Volatilities check-box in the Select Volatility Type section.

Click OK to apply the selection system wide.

For more information, refer to the Option Pricing Model topic.

Manually Enter Volatility Levels for each Option Class

Once Your SOFTWARE's pricing model has been set to accept manual volatility levels, users can manually change the volatility level for individual classes or groups of options using the Manual Volatilities dialog box.

From the Action menu or other location, select the Manual Volatilities command: comnd_manvoltis.png

The Volatilities the dialog box for the currently selected symbol will open:

optns_manulvoltysdialog.gif

The table contains all the Volatility levels calculated for all the option of the underlying asset.

By default these levels are calculated by Your SOFTWARE using system data.

Note - The volatility calculation does not distinguish between puts and calls.

It uses all data for each expiry date and strike price to calculate the volatility.

Set Manual Levels Individually

To manually change an individual option's volatility level, select the row containing the expiry date and strike price for the two options series (both calls and puts will be affected) and type in the new value in its Volatility column.

The Volatility Type text box will change to Manual, and the new value will appear in the Volatility column.

Click OK to apply the new volatility levels to the selected options series whenever they are referenced in Your SOFTWARE.

Set Manual Levels for Option Groups

To set the same manual volatility level for a group of options, use the mouse cursor and the Shift or Ctrl keys:

Set Manual Level for All

Go to the beginning/top of the table and left mouse click the first option.

Scroll to the end/bottom, hold down the Shift key and click on the last option.

All the options in between the two clicks will be highlighted.

Type in the new manual Volatility level.

For all the options in the table the Volatility Type text box will change to Manual, and the new value will appear in the Volatility column.

Click OK to apply the new volatility levels to the selected options series whenever they are referenced in Your SOFTWARE.

Note that the group selected can be less than all in the table. Select one option and then Shift-select another and all options in between the two will be highlighted. Type in a new value for all options in this group.

Set Manual Level for a number of Options

Hold down the Ctrl key and select any number of options, each will be highlighted individually.

When all required options have been selected, type in the new manual Volatility level.

For all the selected options the Volatility Type text box will change to Manual, and the new value will appear in the Volatility column.

Users can select additional groups and apply different volatility levels to each of those groups of options.

Click OK to apply the new volatility levels to the selected options series whenever they are referenced in Your SOFTWARE.

Return to System Levels

Delete Manual Settings for All

To return the volatility values to the system-calculated levels, click Delete All to return all values at the same time.

Delete Individual Manual Settings

Alternatively, hold down the Ctrl key and select each manually created value, and click the Delete Selected button.

In either case, for each option previously set to manual, its Volatility Type text box will change back to its previous setting, and the value calculated by the system using that type setting will appear again in the Volatility column.

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