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Dashboard for US market

Save you work browsing from tabs to tabs and fetch all numbers in one application. Real-time updates.

US macroeconomics

US real gdp growth and US treasury yield curve

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US corporate bond spread

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Federal Reserve M2 supply and growth rate

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Stock and Option Price

Time-series candlestick and performance metrics

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Volatility surface of different expires options

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Order flow

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Polymarket

Politics

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Wars

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Market expectations

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Volatility Surface

Interactive Volatility Smile

The volatility smile depicts how implied volatility (IV) varies across strike prices. We can see that

  1. The smile becomes flatter as time to expiration increases. This indicates that markets price higher short-term uncertainty and tail risk, which smooths out over the long term.

  2. The curve is typically skewed, with higher IV on the lower strike side, and exhibits kurtosis.

    • Skewness reflects greater fear of market crashes than optimism about rallies.
    • Kurtosis signals that the market assigns a higher probability to extreme price moves than assumed in standard models.

  3. The entire curve is shifted toward lower strikes. This dominant negative skew underscores an asymmetric demand for downside protection and the pervasive "crash fear" in equity markets.

In essence, this pattern reveals that real-world markets are driven by asymmetric risk aversion and fat-tailed return distributions, deviating significantly from the assumptions of BSM models.

Event trading - Shorting Vega

1. Overview

1.1 Core Trading Opportunity

Sell options before a major event (earnings, central bank decisions, etc.), betting on a sharp drop in implied volatility (IV) post-event (volatility crush), while managing the gamma risk caused by the event.

1.2 Logic Chain

Market Expectation → Implied Jump → Risk Pricing → Trading Decision

Front-month IV rises → Calculate J → Assess Gamma Risk → Decide to Short

2. Theoretical Basis

2.1 Market Phenomenon Observations

  1. Pre-event: Uncertainty drives up near-month IV, forming a "volatility spike."
  2. Post-event: Uncertainty resolves, IV "crushes" back to normal levels.
  • Key Assumption: The event is the dominant factor causing the difference between front-month and second-month IV.

2.2 Calculate Forward Volatility and Jump Magnitude

Assume two expiration dates:

  • $T_1$: Front-month expiration (covers the event)
  • $T_2$: Second-month expiration
  • $\sigma_1$: Front-month ATM IV
  • $\sigma_2$: Second-month ATM IV

When $\sigma_1 > \sigma_2$, calculate the forward volatility from $T_1$ to $T_2$:

$$ \sigma_{12} = \sqrt{\frac{\sigma_2^2 T_2 - \sigma_1^2 T_1}{T_2 - T_1}} $$

The instantaneous price jump percentage $J$ implied by the event:

$$ J \approx \sqrt{\sigma_1^2 T_1 - \sigma_{12}^2 T_1} $$

Indicates the additional volatility premium the market prices for the event day.

4. Calculation Steps Example

Input Data

Parameter Example Value
$T_1$ 0.0384 years (14 days)
$T_2$ 0.1151 years (42 days)
$\sigma_1$ 45%
$\sigma_2$ 30%

Calculation Process

  1. Calculate Forward Volatility:

$$ \sigma_{12} = \sqrt{\frac{0.30^2 \times 0.1151 - 0.45^2 \times 0.0384}{0.1151 - 0.0384}} = 25.6% $$

  1. Calculate Implied Jump:

$$ J = \sqrt{0.45^2 \times 0.0384 - 0.256^2 \times 0.0384} = 8.7% $$

The front-month IV contains an event risk premium of 19.4% (45% - 25.6%)

5. Trading Decision Framework

Risk Assessment Matrix

Actual Move vs Implied Jump Vega Profit Gamma Risk Strategy Performance
Actual Move < J Gain from IV drop Limited loss Profitable
Actual Move ≈ J Gain from IV drop Loss offsets gain Break-even
Actual Move > J Gain from IV drop Loss exceeds gain Loss

Key Considerations

  1. Time Decay Advantage: Benefits from positive Theta.
  2. IV Term Structure: Must ensure $\sigma_1 &gt; \sigma_2$ with significant difference.
  3. Liquidity Requirement: Need to trade in active underlyings to control bid-ask spread costs.

Strategy Core: By quantifying the market's pricing of event risk (the $J$-value), short the overpriced event volatility premium in a risk-controlled manner, earning Vega profit from the IV crush, while enhancing returns through time decay (Theta).