Hi Steve,I think your work is fantastic. I have a quick question about today's article.Where do you get your numbers for historical implied volatility? Betteryet, where would one get those numbers without having a supercomputersitting around with lots of memory? Thank you kindly, -- DK.
Many readers asked this week about software and resources for option data and strategy analysis. While the learning process is never truly finished, it's encouraging to see a gradual shift in demand from broad educational materials to applicable real-time trading tools. It sounds like you guys are chomping at the bit and really mixing it up out there -- profitably, I hope.
But rather than note specific software packages and trading platforms -- which can be quite costly and, well, I can't give away all my secrets, can I? -- I'd prefer to direct you to a couple of agnostic Web sites that are chock-full of data and research tools that are available for little or no money.
But before I turn you loose, however, allow me a few moments at the lectern.
While I can hardly overemphasize the importance of researching data, back testing and running strategy scans, this simply helps to shift odds and improve risk/reward profiles. The essential ingredient to profitability remains being right. I don't know of any strategies that make money when you're wrong, but there are plenty of strategies, if misapplied, that won't yield a profit even if your thesis is correct. Put another way, if something is cheap, that doesn't mean it won't get cheaper, and if something has never happened before, it doesn't mean it won't.
One site I've mentioned before is
Optionetics.com. While its emphasis is on general option education, it also has some neat free features. Pertinent to this discussion is the high/low volatility section, which can be accessed through the left-hand tool bar on the home page. It lists 100 stocks whose implied volatility is trading at the high end of their two-year range and 100 stocks trading at the low end. I find this a great starting place for finding names to drill down into further.
Another good site is
IVolatility.com. It offers some great tools for scanning through options and identifying opportunities. A few basic services are free, such as an options calculator and quotes. Another nice free feature is its basic option quote page, which provides implied volatility and the historical volatility for the past week and month. For longer time periods, you'll need to pay a $20-a-month subscription fee. This will give you access to data going back to 1999, along with some other tools, such as charting, beta correlation and all sorts of comparison graphing capabilities.
IVolatility.com has a host of other premium services, strategy scanning, spread analysis, etc., that range in price from $10 a month to upwards of $30 a month. Several packages are available. Almost all the services offer a free demo and a trial period. I'd recommend checking out the site and seeing what's available both for free and fee -- in both cases I think it offers some good value.
I like that my mailbox is getting filled with more specific scenario propositions -- most are sound and sensible, some are pretty complex but definitely workable, and a few are real creative brainteasers. But all are thoughtful and show good command of options concepts, pushing my own knowledge base along.
This provides me a nice segue to what's become a very popular topic:
upcoming special dividend payment.
Hey Steve, is there a free lunch on IOM? I'm looking at hedging a dividend capture scheme. IOM will pay a $5 one-time dividend to holders as of Sept. 15. Theoretically, the stock should fall by around $5 after the dividend. The company has about $9 a share in cash right now, and the stock trades at $11. I bought 1,000 shares and hedged this by buying Sept. 10 puts at the market (75 cents), which I financed by selling Dec. 12.50 calls at $1. This seems to be a risk-free trade that will enable me to capture the 40% dividend, unless the shares trade above $12.50 before Sept. 15, and the call owner calls me, in which case I might lose the opportunity to capture the dividend. Am I missing something here, but who was willing to sell me the Sept. 10 puts, since it really does seem likely that the shares will fall after they go ex-dividend? Thanks, -- DP
The dividend will be treated much like a stock split with option strike prices adjusted accordingly. Those who are short stock (or short calls or long puts exercised before the ex-date) will be responsible for paying the dividend. Details can be found
Without going through all the specifics of the prices, the quick answer, sadly, is there is no "free lunch." Funny how rare and short-lived those are in the options world, huh? The reader is essentially describing a collar in which he should lock in any unrealized profit from the long stock and possibly collect the 25 cents net credit of option premium sold.
Keep on writing and I'll keep on answering, and we'll all be better for it.
Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He invites you to send your feedback to