Understanding Volatility Cones

Volatility cones can be a powerful tool for options analysis but many traders don’t know how to use them. They normalize ATM (at-the-money) volatility curves based on the number of days to expiration. This gives you the ability to quickly and accurately assess a contract’s volatility level related to where recent contracts have traded given the same remaining number of trading days.

To access QuikStrike’s vol cone tool, first navigate to QuikVol in the upper left hand corner of QuikStrike. Under QuikVol Home, go to Volatility Cones:



From here, select the product you’d like to view as usual. We’ve selected Interest Rates –> US Rates –> Eurodollars. If you haven’t used vol cones with the selected product before, QuikStrike will prompt you to select the expirations you’d like to view. To do this, go to the Expirations dropdown menu above the charting area.


Once you’ve selected your expirations you should get something like this:

The y-axis shows the volatility and the x-axis shows the number of days until contract expiration.

Note that Essentials users will default to vol cones generated from one month of history while paid users will default to six months of history. Both versions allow you to show curves from historical dates under the “Compare” drop down menu, and both versions give you display options (for example, some users prefer to reverse the orientation of the x-axis to show 0 Days to Expiration on the right hand side).

Decoding the Cones

The lightest color cone (grey shaded area), labeled “Min/Max”, contains all of the vol levels for the time period specified in the “Date Range” drop down menu. The next lightest cone, labeled “5/95” contains 90% of the vol range (excluding 5% on the downside and 5% on the upside). The third cone, labeled “LQ/UQ” – for lower quartile and upper quartile – contains 50% of the historical vol range (excluding 25% on the downside and 25% on the upside).

The arithmetic mean is shown in dark grey and the interpolated curve based on the most recent measurements is shown in black. Markers denote contracts (diamonds) and constant maturity values (circles). Clicking on a marker will bring up its details:

In this example, the Jan18 contract (EDF18) is trading below the average vol level for a contract with 45 days to expiry but is within the LQ/UQ cone. Feb18 and Mar18 (visible in the full vol cone screenshot) are both well below average, but the Apr18 (EDJ18), Jun18 (EDM18), and Sep (EDU18) contracts all have vol levels above the six-month mean.

Oil and Gold Update

Friday’s 3% drop in crude oil definitively broke below $50/barrel with open interest for WTI (as reported in the COT Report) at all time highs. Headlines cite lessening concerns regarding Tropical Storm Nate and oversupply issues. Volatility remains subdued though ahead of OPEC’s Monthly Oil Market Report on Weds followed by the IEA’s report on Thurs.

The WTI COT Report also shows that Producers – who have a natural bias to be short – haven’t been net short this little since Jan 2015 (AKA their net position, while still short, is the longest it’s been in awhile). In Brent, the Money Mangers’ net position is the shortest it’s been in our data’s history (dating back to 2008).

Funny trade in gold on Friday as well – expiring over a year from now the following trade was blocked – all new positioning:

– 7,500 Dec18 2000 calls @ 3
– 7,500 Dec18 2600 calls @ 0.15
– 15,000 Dec18 3000 calls @ 0.1

The sizes make it look like a call spread stupid (the 2000-3000 call spread WITH the 2600-3000 call spread) for when the SHTF – but that far out both in strike and expiry, who knows.

A Survey of Wartime Volatility

This (US) holiday weekend brings headlines from North Korea – the sabers have been rattled and markets are on edge – so we decided to put together a long dated history of volatility in relation to historical events for you to ponder.

A Brief History of Volatility

WARNING: READ THE METHODOLOGY CAREFULLY. THE VOLATILITY SHOWN BELOW IS NOT ANALOGOUS TO TRADABLE SECURITIES. The VIX index, started in 1993, is shown in turquoise for comparison. “The market can stay irrational longer than you can stay solvent.”
The data above is based off of Robert Shiller’s monthly analysis of S&P returns. It’s the annualized (realized) volatility of the monthly data (and therefore does not incorporate the severity of single day events). Recessions are highlighted in red and selected wars are highlighted in green. Historical dates are marked with dotted lines and labeled.

As you can see realized vol spikes much more dramatically during economic crises than wartime events (perhaps an obvious observation, but an interesting one to keep in mind in the given environment). That being said, volatility can be low after a dramatic, wealth destroying sell offs, so here are the YoY returns:
Something to ponder. Thoughts and feedback are always welcome. Enjoy the rest of the holiday.


Market Update

This week starts with Jackson Hole behind us, Hurricane Harvey still playing out, and NFPs/debt ceiling concerns looming on the horizon. S&P500 ATM volatility (and put skew) has come back down to earth in spite of realized vol creeping higher while the dollar index is at the lowest level it’s seen since Jan 2016.


As of Sunday evening, according to the WSJ Hurricane Harvey has taken out ~15% of the US’ oil refining capacity as it continues its destruction and energy markets prepare for a bumpy week. WTI futures are pivoting around the new year although gasoline (RBOB) futures could end up being the more interesting story having caught a pure bid with front contracts up 5.8%:


Thus far in 2017 gold has been unable to break $1,300 although not for lack of trying. With spot prices threatening the high-water mark again the COT report shows that managed money (AKA speculators) have reduced their short positions to the lowest absolute level since mid-Dec 2012:
Dec 2012 started a ~40% decline in gold prices so YMMV.
Longer dated constant maturity vols are near recent lows, while 7-day CM vol is hovering around average on a 1-year timeline so it appears that the market isn’t setup for any long-term surprises (with the exception of the occasional volume spike like the one on Friday ahead of Yellen’s speech):
Gold Vol Cone
Gold Volume Spike

Cross Asset Class Volatility Update

In the last few weeks volatility has returned to financial headlines with a vengeance leaving traders checking under their beds for asset bubbles and causing “panic” when VIX traded with a 17-handle for the first time since November 2016. So what’s really playing out in markets?

* note that the volatilities shown are calculated using industry standards based on the type of asset; for example, absolute levels cannot be compared between rates and metals.


In rates space historical volatility (orange) has picked up but implieds (blue) are lackadaisical. FV/5-yr, TY/10-yr, and US/bond, 30-day constant maturity series are shown respectively below:


Here’s a longer dated TY history:


Gold vol has actually found a bid (with silver and palladium following suit):

While platinum, thus far, is flat:


Natural Gas implied volatility is the lowest it’s been since 2014:

Although oil is off the lows of the year:


Vol has come back down in grains after an exciting month although wheat could be picking up again:


And last but not least, E-mini S&P500 vol has caught a bid:

For a little perspective of where we are currently, here’s a 5-year history of a few constant maturity series:

Like all things, low vol environments eventually come to an end, but low vol by itself doesn’t “trigger”  eruptions. Claiming that vol can uptick ahead of an event isn’t exactly going out on a limb. But I’m sure they’ll tell you they told you so next week.

Feature Highlight: Quickly Access Product Overviews with This Week in Options (TWiO)

For a product specific overview of recent moves in volatility, open interest, and volume all in one place, check out This Week in Options under Market Dashboard → TWiO Report.

This Week in Options

This Week in Options

The symbols for the selected expirations with their respective expiration dates and days till expiry are on the left followed by the at-the-money (ATM) strike and future price. These columns also display their changes underneath the values.

The volatility columns display the ATM volatility, the risk reversal (RR) for the selected delta value, and the QuikSkew™ for the selected delta. The open interest and volume columns display totals, put/call ratio, and the most active contracts, all with changes.


QuikSkew ™: A Snapshot of the Vol Curve

You can think of QuikSkew™ as a snapshot of the shape of the volatility curve that normalizes for high/low volatility environments. The format is a number followed by the letter “P” and then another number followed by the letter “C” as shown here:

This example is from the TWiO Report, so the QuikSkew ™ measure on top (bold, blue text) is the current value and the measure on the bottom (normal, black text) is a historical measure such as prior day, prior week, etc. (specified by the user in the report controls at the top of the page). The values shown are for 25-delta options (also specified by the user). We’ll examine the current value – e. g. 24.5P-18.1c.

Interpreting QuikSkew™

The first value is the richness or cheapness of the puts to the at-the-money (ATM) volatility followed by the letter “P.” If the “P” is capitalized it indicates that the put volatility is rich to the ATM – e. g. the put volatility is greater than the ATM volatility – while a lowercase “p” indicates that the puts are cheaper – e. g. the put volatility is less than the ATM volatility. Therefore, the number, 24.5, with a capital “P” indicates that the 25-delta puts are 24.5% rich to the ATM. That is, if the ATM volatility is 10, then the 25-delta put volatility is

10 + 10 * 24.5% = 12.45

The second value is the richness or cheapness of the calls to the ATM, followed by either a capital “C” denoting that the calls are rich to the ATM or a lowercase “c” denoting that they’re cheap by comparison. In the above example – “18.1c” – the lowercase “c” indicates that the 25-delta calls are 18.1% cheap to the ATM volatility. Mathematically, if the ATM volatility is 10, then the 25-delta call volatility is equal to

10 - 10 * 18.1%  = 8.19

Change over time

The historical measure – “24.9P-20.1c” – shows that 25-delta puts went from being 24.9% rich vs. the ATM to 24.5% rich vs. the ATM – that is, the puts are less rich now than previously; while the 25-delta calls went from being 20.1% cheap vs. the ATM to 18.1% cheap vs. the ATM – that is, they are less cheap now than they were previously. We can imagine this as a flattening of the volatility curve when normalized for any changes in the ATM volatility level.

Strike Detail Popup: See Strike Info at a Glance

Our last blog post broke down the Strike Detail Sheet in QuikStrike. But as we mentioned in the post, there is another way to access all the information on the page. Clicking on (almost) any strike price in QuikStrike launches the Strike Detail popup:

QuikStrike Strike Detail popup


As you can see in the image above, the popup includes:

  • Strike Detail
    • Selected strike price is anchor strike for all trade types on the chart
    • Has the same functionality as Strike Detail Sheet minus Analysis Bar
  • Vol History
    • Volatility and Future Price of selected strike price on a specific date (going back as far as 12 months)
  • ATM Vol History
    • ATM Volatility and Future Price of ATM strike on a specific date (going back as far as 12 months)
  • Volume & OI
    • Trade Volume and Open Interest for calls and puts for selected strike price (going back as far as 12 months)
  • Vol Chart
    • Current and Settlement Vol Chart for selected expiration
  • Pricing Sheets
    • Standard Pricing Sheet and Straddle Sheet for selected expiration
  • Futures
    • Future Price vs. Time graph for the selected expiration’s underlying at a specific time
      • Some months go to underlying futures that are not the same as their expiration month
      • Trade Volume and Open Interest will be shown in the same view when selecting a history of at least 1 Week

Launch this popup from (almost) any page in QuikStrike. Don’t forget to hover over the graphs and charts in each tab of the popup to view specific information.

The Strike Detail popup allows users to access information about a particular strike price, expiration or future price without navigating from their current page. Please let us know if there is anything you would like to see us add to this popup, or any of our other popups within QuikStrike. Feel free to add a comment below, shoot us an email ( or tweet us.

Get Greek Help: QS.EDU Has a Calcs 101 Tab

In our most recent post, we referenced the Greek help in the QS.EDU section of QuikStrike. Understanding what each Greek value means and how they are affected by changes in the strike price, future price, volatility, days to expiration and interest rates is imperative in order to trade options successfully.

The Calcs 101 tab thoroughly explains how to calculate Delta, Gamma, Vega and Theta, as well the Rent value. Let’s take a look at the Delta page to give you an idea of what to look for on each page.

QuikStrike Calcs 101

The first thing you’ll notice is the header of the page (Delta) with the Greek symbol next to it. Beneath the header will be the definition and equation for how to calculate the selected Greek value. Becoming familiar with the formula to calculate all the Greeks and the Rent value helps you understand where risk can come from, create expectations for a certain position and reduce the number of surprises one encounters when evaluating the behavior of an option’s price.

The strike noted on the page is the ATM strike, the future is the current underlying price and the current volatility is also used. On this particular page, you’ll see the Delta value for both calls and puts, followed by the other Greeks. Note that the strike information shown is always the current ATM strike for whatever expiration is currently selected.

In the Example Calculations section, you can use the equation to see how the Delta changes when there is a change in the underlying price. In order to calculate the new Delta, it’s important to understand all the variables (and constants) in the equation.

Before reviewing this sample calculation, we need to define the inputs into the equation. We know the Premium is the price you pay for an option and the Future Change is the change in future price. However, you may not be familiar with future and option base and the scale factors. The future and option base are the numeric bases for the fractional portion of the future price. These values only apply for treasuries in which the option base is 64 and the future base is 32. Understanding scale factors is fairly simple; they are used to scale the output of the pricing models for display. To see how scale factors differ from product to product, check out the Contract Specs → Product Properties page in QS.EDU.

Now let’s dive into the calculation. We’ll use first item in the call column when the future price rises .02. Plug in the variables into the equation below to find the new Premium:

  • Premium1: 2.70
  • Delta: 54
  • Future Change: 0.02
  • Option Base: 100
  • Future Base: 100
  • Option Scale Factor: 1
  • Delta Scale Factor: 100

Premium2 = Premium1 + Δ * FutureChange * (OptionBase/FutureBase) * (OptionScaleFactor/DeltaScaleFactor)

2.71 = 2.70 + (54) * (0.02) * (100/100) * (1/100)

If you’ve correctly used the equation, you’ll calculate Premium2 to be 2.71.

As you may have noticed, this particular Calcs 101 page was for American Crude Oil. It’s important to understand that every page example is specific to the product and has the actual, current ATM information for that product. Let’s take a look at the Calcs 101 page for Eurodollars.

EDH5 Calcs 101

Do you notice anything different from the American Crude Oil Calcs 101 page? Remember to look at all of the inputs we plugged into the equation. The Option Scale Factor for Eurodollars is 100, while for American Crude Oil it was 1. Always remember to check to see if you are using the right equation before doing any calculations.

Do you find the Calcs 101 tab to be educational? Are there any further questions we can answer about how to calculate the Greeks? We’re here to help. Send us a message at Thanks for taking the time to read our blog!

Broker Edition: 5 Reasons Why You Need QuikStrike Professional

If you’re a broker and you haven’t had the opportunity to take an extended look at QuikStrike, this blog post is a must-read. We know that you’re not going to invest in our option pricing and analysis tools if you don’t know how it provides value for you. Below is a breakdown explaining how QuikStrike Professional helps you better service your clients:

  1. The ability to quickly determine the fair value of option prices and identify correct Greeks

We know that many of you get your pricing information from market makers and other sources of information throughout the day. With QuikStrike, you have quick access to a baseline of pricing, allowing you to more easily compare perceived market prices with what those prices actually should be.

  1. Allow customers to track their trades

Grant customers access to your QuikStrike account where they can save a trade, put in a price where they traded it, look each day to see whether that price has changed and view PnL values. From there, they can add the trade to a Watch List to see how that particular execution is performing.

  1. QuikStrike has a performance-ready interface

Time is at a premium during the trading day. That’s why we created QuikStrike to help you gain access to information quickly and efficiently. Within our web tool, you can easily jump between pages of information and find what you need with just a few clicks.

  1. Get the data that you want

Volatilities are updated every 30 to 45 minutes and prices are slightly delayed, but that doesn’t mean you can’t access the data that you need to help your customers. Our pricing sheets allow you to manipulate data in many different ways within the analysis toolbar:

  • Change the direction from Vol to Price or Price to Vol
  • Adjust the future price
  • Reduce or increase the volatility
  • Toggle Current or Settles price
  • Change the Days to Expiration
  • Select your pricing model of choice
  • Pick a certain number of strikes to view

Clicking on the Simple Option Calculator in the Pricing Sheets enables you to perform analysis straight from the page without clicking out of the page.

  1. We have historical volatility and historical settlement prices for all active expirations

Historical volatility and historical settlement prices are often hard to come by without breaking the bank. This is why we give you access to strike specific and strike-level data right within the application. If your customers base their strategies on different patterns in the past, you can easily access this information for them within QuikStrike.

Interested in QuikStrike Professional? We offer anyone who hasn’t tried our product a free 2-week trial and we are also more than happy to set up a demo to take you through the application. Email us at