OptionVue Volatility Models provide a competitive advantage!

On any given underlying security or index, all options do not trade at the same levels of implied volatility. This phenomenon is called the volatility "skew". The "at-the-money" option strikes will typically have a different level than the "in-the-money" or "out-of-the-money" strikes. This is known as "the vertical skew".

Likewise, implied volatility levels of the distant months will typically differ from those of the current month. This is known as "the horizontal skew".

OptionVue plots these relationships in a skew graph that helps the trader understand how the skews are being affected by daily market fluctuations.

Skews are constantly adjusting as both the price of the underlying changes and as time draws near expiration.

• The vertical skew will typically shift as the once out-of-the-money or in-the-money strikes become at-the-money, and vice versa.
• The horizontal skew will typically adjust as time decays and the distant months draw nearer.

A shift in skews can have a significant effect on an option's theoretical value and how it reacts to price changes in the underlying. These shifts must be critically considered to properly model potential profit and loss.

Dynamic Volatility Models

Traditional options analysis programs use an average volatility level for calculation purposes. OptionVue 5's True Delta model uses the vertical skew (the skew that truly exists in the market place) within it's pricing models to provide a more accurate calculation of the Greeks. Accurate calculation of the Greeks results in more accurate price projections.

OptionVue 5's proprietary Variable Volatility model accounts for the likely shift in skew by continually collecting implied volatility information. This incredibly valuable information is then stored and used to project the likely changes in skews that will occur both over time and with any price movement of the underlying.

As the price of the underlying security moves up and down, the overall levels of implied volatility have a tendency to change as well. Our powerful servers are constantly running proprietary algorithms to measure the correlation of price movement to volatility change. We then calculate the CEV* factor on every optionable security or index for use by OptionVue 5. With this proprietary CEV factor, a likely change in implied volatility levels will be accounted for in OptionVue 5's calculations and provide more accurate results.

Trade with OptionVue 5 and trade with a competitive edge!

* The current CEV factor is delivered to OptionVue 5 within the Background Database update.