Monitoring Gold's Implied-to-Realized Volatility Ratio from Options Data
Summary
The article builds a gold volatility monitor by comparing near-the-money implied volatility from GLD options with recently realized volatility, aligned to a 30-day horizon. It describes implied volatility as the movement embedded in option prices and realized volatility as a measure derived from historical returns. The ratio is used to classify conditions, from expensive protection to realized movement exceeding what options had priced. Suggested boundaries are configurable heuristics, not estimated or validated thresholds.
The implementation solves implied volatility from option prices with a Black-Scholes inversion, averages near-the-money call and put readings, interpolates across expiries using total variance, and publishes data for MetaTrader through a JSON feed. A reported comparison found similar realized-volatility readings for GLD and XAUUSD over one window, but the article treats this as a spot check rather than proof that ETF options match spot gold. The ratio may inform sizing and market context, but it gives no direction or timing signal; premiums can remain elevated, and implied volatility reflects supply and demand as well as expectations.
Key ideas
- The monitor compares 30-day near-the-money implied volatility with realized volatility over a matching horizon.
- It treats the implied-to-realized ratio as a configurable regime indicator rather than a validated trading trigger.
- Implied volatility is solved from option prices because vendor-provided volatility fields may be unreliable.
- Near-the-money calls and puts are averaged, and expiry readings are interpolated using total variance.
- GLD options serve as a practical proxy for gold, but one comparison does not establish equivalence with spot gold.
- The ratio can add context for sizing and risk, but it does not indicate price direction or entry timing.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.