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2010issue C0846-55

Expiration-dated volatility cones as portfolio context

In a 2010 desktop session, implied volatility drew a probability cone, a table listed above-or-below odds by expiration date, and a 10 percent price slice recomputed the risk profile. Editorial reading: reread the same price target at the next listed expiration before judging whether that ticket still belongs in a mixed book.

  • Implied volatility was the market-implied width used both to price the option and to draw a probability cone.
  • The documented analyze path built a risk profile first, then read the probability curve for a chosen underlying price such as breakeven.
  • The chart marked a one-sigma band at the 6/10/2010 and 7/10/2010 expirations, and the table listed above-or-below probabilities by expiration date.
  • Editorial reading: treat listed expiration as a second axis on the implied-volatility map, not as a deadline on a hunch.
Entries in this reading3 entries
Current trackBlack-Scholes Model20 readingsOption expiration analysis38 readingsImplied volatility analysis176 readings

The cone and the dated table

Desktop option analysis in the 2010 case treated implied volatility as the market-implied width of the underlying distribution. That width priced the option and drew a probability cone, a time-versus-price map of the chance the underlying finishes above or below a chosen level.

A probability chart related days remaining to expiration to those chances. The accompanying table was organized by option expiration date and listed above-or-below probabilities at multiple price levels. That table is option expiration analysis in the archive sense: the odds of a price target are compared across listed expiration dates rather than at a single horizon.

The chart marked a one-sigma band, the model-implied one-standard-deviation path of the underlying, at two contract expirations dated 6/10/2010 and 7/10/2010. Cursor crosshairs reported those probabilities.

Pricing could be switched among three volatility models: binomial, Black-Scholes, and Bjerksund-Stensland. The Black-Scholes model is the closed-form baseline that turns an implied-volatility input into a forecast distribution for the underlying.

Risk profile, then the odds

The documented analyze path was to build a risk profile first, then read the probability curve for the odds of reaching a chosen underlying price such as breakeven. A risk profile is a plot of profit or loss against underlying price for one or more option structures.

A risk graph could overlay more than one structure at once and mark plus 10 percent and minus 10 percent underlying moves with vertical guides.

The same workflow allowed a user-defined price slice: a hypothetical 10 percent move in the underlying at which the greeks and the risk profile were recomputed.

A historical replay mode reconstructed how an option structure would have behaved on past prices. The archive records that mode. It does not report what the replay showed.

The same target at the next expiration

Editorial interpretation: the later date is not a longer version of the same hunch. It is a second reading of one price target on the implied-volatility map, after the risk profile has already been built and after a 10 percent price slice has been applied.

Editorial interpretation: only after that second reading does the ticket get discussed as part of a mixed book. The archive describes the screens. It does not rank structures or state a keep-or-cut rule.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
14 of 18 in the Black-Scholes Model track
201534-37 pp.Next on Black-Scholes ModelAuditing buy-write recovery overlays against pricing and scenario breaksThe protective layer is only a fallback after a priority screen is supposed to keep out names that fall sharply in the first few months.
All readings on this track · 18 readings
  1. 1988Critiquing Black-Scholes early exercise on futures options
  2. 1988Constructing option premiums against a Black-Scholes baseline
  3. 1989Limit fills around option fair value
  4. 1990When volatility skews are regimes, not mispricings
  5. 1994Estimating closeout value on a Treasury bond options strangle
  6. 1996Constructing option theta from premium, volatility, and moneyness
  7. 2002Calendar income from volatility skew and time stops
  8. 2003Constructing option value from historical and implied volatility
  9. 2004Calendar construction from exercise style, time budget, and carry
  10. 2005A mid-life payoff chart is a volatility-regime assumption
  11. 2005Exotic option payoffs beyond the vanilla premium
  12. 2006Auditing index volatility inputs in call income studies
  13. 2008Ratio write delta adjustment when the tape rises
  14. 2010Expiration-dated volatility cones as portfolio context
  15. 2015Auditing buy-write recovery overlays against pricing and scenario breaks
  16. 2015Odd-lot mini-option hedges versus implied volatility
  17. 2018Implied volatility as an option-premium construction gauge
  18. 2019Black-Scholes construction from a covered-call balance sheet
By fieldOptions and volatility435 readingsBy year2010169 readings
All 20 readings tagged Black-Scholes Model
Also on Black-Scholes Model5 readings
2004Calendar construction from exercise style, time budget, and carry1988Constructing option premiums against a Black-Scholes baseline1988Critiquing Black-Scholes early exercise on futures options1990When volatility skews are regimes, not mispricings1994Estimating closeout value on a Treasury bond options strangle