Implied Volatility, Volatility Skew, and the Term Structure of Volatility

[@lemming78]

Mark, please please keep doing this. I literally jump on these kind of videos of yours when I see them. This is the link between the CFA program and the practice, a link which most of the time is very difficult to make despite being passionate about this world.

[@boonedocksfl2012]

Yea even charge for more of them I would buy

[@alexh.4842]

Evergrande, the China bond. This illustration is supreme, take the synthesis to a whole new level. Thanks for splendid work!

[@fminc]

First time watcher. Lifetime subscriber. This was as succinct as it gets.

[@cervenytraktor]

Hi Mark, I would like to thank you kindly for your work. Level 1 Exam results from July came today and despite 22% pass rate I have comfortably scored above 90th percentile, learning mainly from your free videos and just practice questions from CFA learning environment. I would highly suggest you to everyone preparing for an exam and will gladly buy your video package for Level 2. Cheers

[@PS-hi9os]

so you just watched the videos and practiced questions? that’s it? that’s the route i’m following now for may 2022 i’m worried that it’s wrong. But i feel note taking is a waste of time and listening to mark helps me understand so much

[@shambler64]

The best! Never quit teaching, please!

[@xMohJeex]

Hi Mark.. This is my second comment in this video. Just wanted to say thank you as I find your applied series extremely valuable. I find myself watching the videos multiple times, and each time catching something I didn't catch on my previous view. The only downside is that they're few and far in-between! I know that you are extremely busy though and do this for the love of sharing your knowledge. I also want to thank you for your level 2 CFA package. I scored in the 90th percentile on my first attempt using nothing but your content and CFAI end of chapter questions.

[@MarkMeldrum]

Thanks for the kind words - finding the time is difficult, yes.

[@tomholland2055]

Thank you Dr. Meldrum for another great video. Always enjoy listening to your thoughts!

[@stevenbentley2522]

Always love the applied content. For those new to spreads- as enticing as the VXX 26/32 bull call is when looking at payoffs at expiration, it's important to realize the impact volatility has on the pricing of those options prior to expiration. E.g. as volatility rises your short 32 strike call is going to rise greater relative to your ITM long 26 call. If vol is high enough, it's not difficult to find yourself in a spot where the two options are very close in price and still have a ways out to expiry even though you've crossed the spread. Given the pace in which the SPX finds a bid after a brief selloff, it's unlikely you'll have time to ride out a long vol position for x more months for the spread to expire in order to actually capture the spread.

[@MarkMeldrum]

Good point. I use SPY, and would simply step out of the spread by closing the long option. I don’t mind being assigned on the short option if that does happen. VXX has nothing I want to own, however, stepping out would leave me assigned a short VXX position, which always reverts. So it’s not like both legs have to be closed at one time. It does require margin reserves and an ability to accept a short position. No matter how painful a short VXX position could get, it always, always, reverts.

[@EPS-tz6qg]

Awesome video Mark! Great to catch this now and contemplate how it related to the past year we had. Would love to see how you would recast this analysis for 2023!!! Maybe on QQQ? Thanks again!

[@TheDunningKrugerEffectisReal]

Thank you so much for the content, I'm very interested in finding out how these plotted curves reflect in the market per percent%change in Volatility and finding a breaking point where the skew is heading towards a reversal.

[@wanura]

Amazing explanation, please keep doing it

[@aladdinkayqubad1645]

Thank you, Professor.

[@karishmaagarwal3848]

Hi Mark. Thanks for your help throughout. With 20 days remaining for CFA L3 papers, we candidates are waiting for your video for the strategies to follow in the last 20 days for going through mocks and revision. It would really really help if you could please put a video on the same asap. Thanks

[@manjitmalhi5911]

fantastic

[@taylor_o]

Great video, mark!

[@xMohJeex]

Did you even watch it yet? It's 35 minutes long and have been posted a minute ago.

[@taylor_o]

@@xMohJeex definitely not!

[@Vishal-ih3tc]

Thank you Mark! It was amazing to learn another way to play the market in short run. 🙌 Quick question, when do you close risk reversal position or do you let them expire so you make whatever is in the money? It would be great if you could do a video explaining when to exit a position or how to exit a position.

[@ashishkakkar7137]

❤❤

[@ilya.rabota4578]

Thank you, Mark! Love it! You’ve mentioned financing put spread with selling a call. What do you feel about financing spreads with selling another put. 441 type of combo. Thank you!

[@roohhhaaaannnnn]

In search of higher yields, what about Emerging Markets? China, Hong Kong and Malaysia are down on a YTD basis. I understand the risk associated with China especially with the recent events. Also there are pockets of market which are overheating particularly when you look at India and Bangladesh so I'm not ignoring the risks present, but how about a play on KOSPI (South Korea) or SET (Thailand)? I primarily wanted to understand the hesitancy towards investing in EM's when yield on the Developed Market's are quite low. Is it the money printing/bond buying that gives you sort of a downside protection in DM's? As always, thanks professor for the informative video. :)

[@royconago4655]

Dear Mark, thanks for the content i enjoy learning it. One question i don't under is at 24:28, you mentioned you long 446put, sell 416put spread. If market comes down and bottom, you will close the 446put and take the profit of 416put, since 416put is short, will there be profit if the market come down? Thanks again.

[@ngominh7987]

Hi Mark. I just passed level one (above 90% percentile - just to brag) thanks to your program. I'm planning to sit for Lv2 August 2022 but registrations are not available yet - can I still purchase your course since I'm technically not a level 2 candidate - yet ?

[@MarkMeldrum]

Yes - Level 1 results will do if we need to verify anything.

[@mikumikuiyada]

I have a question. Using the merton model for bond valuation, or calculating VAR for risk management purposes, whats the best number for volatility? very often, we just want ONE number. 20%. In this presentation, there are many volatility, depending if its implied from calls, from puts, depending on time, and depending on market conditions. Whats the best number for volatility? (for merton model, and VAR calculation)

[@budhadityadebnath3706]

At 1:46 the statement " If Volatility would be equal at all strike prices, an atm put and atm call would cost the same amount of money" is technically incorrect. If Volatility is the same across all strike price, then the underlying distribution would be lognormal. The price of call and put are never the same....at a particular strike price, they're governed by PCP and that itself implies that the Implied Volatility of Put and Call would be the same.

[@MarkMeldrum]

You are reading that graphic wrong. It is not a single distribution. The vertical is price, not probability, so both tails are bounded by zero. The left tail is put prices and the right tail is call prices. Over a short period like 30 days, with interest rates basically zero, ATM calls and puts would be identically priced with equal IV. All other prices are at equal distances from ATM, so they are not governed by PCP. They would be if you are pricing calls and puts at the same strike, which this is not. If ATM is 446, this is showing the symmetry in price of a 445 put and a 447 call, a 444 put and a 448 call, and so on.

[@micha3l679]

I think the market might be wrong and here’s my thoughts. Economic data: we have been ambushed with economic data in the last couple of months that has disappointed to say the least. We have been talking about September for months now as when kids go to school and when unemployment benefits will stop, but September has came around we’ve had bad news and the labour market remains in the same position it has been for the last couple of months. Bond yields have been making lows during this as well. All these issues and the market is making new highs. (Given we have 1 week of weakness that was nothing) COVID: I live in Sydney Australia, and we have a strict lockdown (police helicopters, can’t be more than 5km from your house.. etc) and it’s like our market doesn’t really care. We had, let’s say, a 5% correction when it was first announced and we’re back. Where are people going to put money? Inflation: transitory or not, all we hear about is inflation, and when people have money where are they going to put it. All we hear is inflation, so how can we reasonably buy bonds or leave money in banks? Wether it’s real or not, the expectation of inflation would make people want to at least beat inflation and that’s only in equities. Human behaviour: the UK has 10,000’s of cases (and rising) and stadiums and festivals are at full capacity and same with the US. And I don’t think people would be okay going into some sort of lockdown (I understand that it’s not a choice but people’s reaction won’t be like the first time). The play: I’ve done the risk reversal, and for anyone worried about the margin requirements for SPY, SPLG is a good option. The options for December 17 are liquid-ish (definitely not like SPY) but have about a 0.10-0.20 bid-ask spread.

[@thespaceproduction5505]

The market can't be wrong

[@chadalacteslanade9681]

First comment. Thanks for great content

[@mergo10]

Who is making money because of this video ?? Props to the all mighty MM

[@gn6905]

love this stuff.. what IV viewer application is this?

[@MarkMeldrum]

Interactive Brokers.

[@TimmyTimFTW]

Mark, 2 things. Why use the VXX ETF instead of playing the options on the actual VIX? Also, Fed taper was not mentioned once, which was surprising to me. I feel like that is a major reason behind the market’s fear right now.

[@MarkMeldrum]

You can use the options on the index, much like you can use the options on the SPX instead of SPY. Those are sometimes inaccessible to retail traders depending on their brokers. Many discount brokers don’t offer index products, only ETFs. Most live quotes packages also include ETF and options prices but you pay extra fees to have live VIX/SPX index pricing, if your broker even offers that.

[@surabhik3486]

Hi Mark, I just passed level 1 with above 90 percentile score.I am planning to appear for level 2 in Feb 2022 and register with you.Do you think 4 months in enough prep time?

[@ankitachakravarty8117]

Many Congratulations on passing! 🎉 I've scheduled my level 1 exam in November and I'm feeling the stress and anxiety already. Would highly appreciate if you could share any tips that helped you, especially your approach in the last 2 months before the exam. Thanks in advance and wish you the very best for L2!

[@surabhik3486]

@@ankitachakravarty8117 Hi Ankita.I am a CA so I was already quite clear with most concepts.I used just Schweser notes.I hardly prepared for 2 months which obviously I wouldn't advise you to do.One thing I would suggest though is practice as many questions as you can.Complete all CFA website and curriculum questions.Atleast for me it's a better way to understand concepts than just re reading or rewatching videos.Thank you for the wishes and all the very best to you!

[@ankitachakravarty8117]

Thank you for responding! I'll definitely practice as much as possible. Thanks for the wishes! :)

[@i486DX66]

"where am I gonna go" that's what the longs were telling themselves before the 25% drop over the next year

[@johnnybee9724]

👋👋👋👋👋👋👋👋🔥🔥🔥

[@bartoszzegarski6833]

Hello Mark. "it's typical that there is negative skew on the sp500" - shouldn't it be positive skew? Thank you!

[@MarkMeldrum]

Yes - negative slope, positive skew.

[@qihuaxu8805]

Hi Mark, how do you define your "full position"? is it a dollar amount? or a percentage of your portfolio value? or the notional value of the option position which covers the portfolio? you dont have to tell me your personal number, just trying to understand your approach . Thanks!

[@am-vj4fx]

Mark, thanks for the video. Started reading derivatives for level 3 & saw this video. How do I replicate these charts and which trading platform you are using for me to replicate these charts?

[@MarkMeldrum]

Interactive brokers.

[@mergo10]

WOW

[@mergo10]

Hello Dr, Do you know if there is a smaller substitute for SPY ?

[@xMohJeex]

SPLG but worse liquidity and wider spreads.

[@xMohJeex]

Don't knock-out the distant 5 cent options! They are very useful for a newbie investor who is only approved to open risk-defined option positions (like spreads) and isn't allowed to sell naked calls/puts ;)

[@chris-nx1nk]

Hi mark. I am thinking about taking your course for CFA L1 2022. Roughly speaking, in percentage terms, how different is the 2022 syllabus to 2021?

[@PS-hi9os]

I am using that course atm. He teaches based on thee learning statement outcomes so you’re not missing out on anything. the course is heaps good so far 😊

[@evenwins]

and this is why i sell premium. sell hopes and dreams we have a tail event

[@moneyness1]

hmm, for my small margin account, i just couldn't afford selling 403 spy naked

[@jiaxinxu6845]

Evergrande. The name's Evergrande. Wink.

[@MarkMeldrum]

That’s it.

[@13tomasito13]

The images are very hard to see. Not very useful Mark.

[@अंतुबर्वा]

kzbin.info/www/bejne/p4Wxp6durJysoKc t=1444s - at this time, I assume the execution of put spread is 1> Execute Buy Put @446 (ITM), 2> Close Put @ 416, 3> buy cheaper OTM Call . Please explain how you would have profit in buying back 416 put, wouldn't it be expensive as the strike reaching close to ATM (delta increase)? Do you mean the time decay will erode the price more than delta, gamma increase?