Implied Volatility Suite

The Implied Volatility Suite indicator provides a comprehensive toolkit for analyzing market volatility through four distinct data types: Implied Volatility (IV), IV Rank, IV Percentile, and a Volatility Skew Index. This tool aims to help traders identify mean-reverting opportunities and assess market sentiment by quantifying how current volatility compares to historical norms.

Usage

The script can be used to gauge whether options are relatively "cheap" or "expensive" and to forecast potential volatility shifts.

• Implied Volatility (IV): Displays the market's forecast of a likely price movement.
• IV Rank: Ranks the current IV relative to its high and low over a specific lookback period. A high IV Rank (green) suggests volatility may decrease, while a low rank (red) suggests an increase.
• IV Percentile: Measures the percentage of historical IV data points that are lower than the current value. It is often considered more robust than IV Rank because it accounts for the entire distribution of data rather than just the extremes.
• Volatility Skew Index: Compares the implied volatility of downside strikes versus upside strikes. This helps traders understand the "skew" or bias in market pricing for tail risks.

Users can choose between two calculation methodologies:

• Model-Based: Uses standard mathematical projections to calculate values closest to real-world option IV.
• VixFix: A price-based calculation (synthetic VIX) that is more sensitive to recent price action and exhibits a directional element, typically increasing during market downturns.

Details

The indicator implements a Model-Based IV by calculating log returns and standard deviations over a user-defined expiry window. The VixFix alternative replicates the behavior of the VIX index for any asset by analyzing the relationship between current lows and recent highest closes. The Skew Index is derived by comparing the volatility profiles of simulated upside and downside price deviations.

Settings

General Settings

• Calculation of Implied Volatility: Select between "Model Implied Volatility" or "VixFix".
• Choose Volatility Data: Select which of the four metrics (IV, IV Rank, IV Percentile, or Skew) to display on the chart.

Model-Based Parameters

• Minutes until expiry: Additional time granularity for the model calculation.
• Hours until expiry: Additional time granularity for the model calculation.
• Days until expiry: The primary time horizon for the volatility projection (e.g., 45 days for standard options).
• Model IV Rank/Percentile Length: The lookback period (in bars) used to calculate the Rank and Percentile when using the Model-Based version.

VixFix Parameters

• VixFix Length: The lookback period for the initial VixFix calculation (e.g., 252 for one trading year).
• VixFix Rank/Percentile Length: The lookback period used specifically for ranking the VixFix output.

FAQ

How do I interpret the colors for IV Rank and IV Percentile?

Values above 50 are colored green, suggesting that volatility is relatively high and may mean-revert downward. Values below 50 are colored red, suggesting volatility is relatively low and may increase.

What is the difference between IV Rank and IV Percentile?

IV Rank only considers the highest and lowest values in the lookback period, making it susceptible to outliers. IV Percentile considers every data point in the period, providing a better view of how current volatility sits within the historical distribution.

How do I access Implied Volatility Suite?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.