Using Floating and Constant Moneyness Surfaces to Find Option Mispricing

Summary

The document explains how implied volatility (IV) surfaces organized by option moneyness can help identify relative pricing anomalies. A floating surface compares options at their actual listed expirations, while a constant surface interpolates or extrapolates options to standard time horizons. The first can reveal unusual volatility at a particular strike or expiry; the second supports comparisons across maturities and historical tracking at consistent horizons.

Suggested checks include comparing put and call skew, contrasting short and medium term IV, and checking whether an apparent anomaly appears in both surface types. The text gives illustrative scenarios and suggests using historical data, alerts, and backtests to assess divergences. These are proposed analyses, not evidence that the signals predict returns: unusual IV may reflect demand, event risk, or temporary liquidity conditions. The discussion focuses on BTC and ETH options and does not specify a pricing model, execution costs, or a tested trading rule.

Key ideas

• Floating surfaces show implied volatility by moneyness for actual listed expirations.
• Constant surfaces standardize maturities to make comparisons across time more consistent.
• Cross-checking both surfaces can help distinguish expiry-specific dislocations from broader volatility changes.
• Historical comparisons can flag unusual skew, but an anomaly alone does not establish mispricing or profitability.
• Event risk and liquidity can explain volatility differences that otherwise look unusual.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.