Building Historical Implied Volatility Series at Fixed Delta
Summary
The document explains how to track relative implied volatility at a specific option delta over time, such as comparing a 10-delta put with an at-the-money put. The suggested process begins with collecting option quotes across strikes and expirations for each observation date. For every date, construct an implied volatility surface, then interpolate it so volatility can be read at a consistent delta and maturity even when no listed option matches that exact point.
Once the surfaces are available, extract the desired volatility points and form a time series or ratio for relative-value analysis. This makes comparisons across dates more consistent than simply following a fixed strike. The answer notes that surface construction and interpolation can be demanding for a beginner and suggests using an established professional data service. It does not specify an interpolation model, quote-cleaning rules, delta convention, or trading trigger, so those choices affect the resulting series and any strategy built from it.
Key ideas
- Collect option observations across strikes and expirations over time.
- Build an implied volatility surface for each observation date.
- Interpolate the surface to obtain volatility at a consistent delta and maturity.
- Compare extracted points through a historical series or relative-volatility ratio.
- Interpolation choices, data quality, and delta conventions affect the measure.
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Full text
# How do I track implied volatility of specific delta? # How do I track implied volatility of specific delta? I'm a newbie with respects to volatility trading and options. I recently purchased a book on the topic called "Trading Implied Volatility -An introduction" by Simon Gleadall. It's been one of the most informative books on options that come across and i'm learning a lot about the subject but there are a few things that i'm having trouble understanding. In one of the sections on "Trading the Curve", the author states: "The trader will have a measure of the relative value. For example, he may track the ratio of (-)10 delta put implied volatility to 10 delta call implied volatility for 3 month options...he is likely to look at a long comparable series of such ratios in the product. His strategy is likely to have some kind of trigger at which point the difference between the current ratio and the historic ratio is significant enough for him to want to trade." Let's say that i want to track a series of the 10 delta put relative to the ATM put How can it be done? how can i create this "measure of the relative value" and "long comparable series of such ratios in the product" practically? ## Answer by onlyvix.blogspot.com (score 2) https://quant.stackexchange.com/a/22085 Basically there are three steps to accomplish this. 1 - collect time series of options for several expirations and strikes. 2 - calculate implied volatility surface for every time period, and use model-based or model-free interpolation to create continuum of strikes / expirations. 3 - from the continuous surfaces you can calculate series of any specific points of interest (e.g. 10-delta 3-month IV) To do this manually is complicated for a beginner, and you should probably use some existing professional service.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.