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IVolatility.com - data and services usage: Advanced Ranker

In the current issue we will cover Advanced Ranker - yet another tool we are offering to our clients and which may help you in search for trading opportunities.

Basically, Advanced Ranker is a Stock Scanner. It allows you to find stocks for trades with maximum change in volatility (both implied and historical) but also to look for top movers in Call/Put IV index ratio and Correlation. This tool can be equally used for trading stocks and to search for trading opportunities based on various options strategies. With Advanced Ranker you will be able, to name a few, formulate trading ideas for overbought/oversold options and find appropriate buy/sell strategies. The ranker detects stocks that have been impacted by changes in volatility and identifies those with the greatest variations.

If on top of the stock scanning that you can do with Advanced Ranker, you are looking for an easier way to find an appropriate option strategy or options to trade, you may want to try our RT Options Scanner and/or RT Spread Scanner allowing you to search through a complete list of all publicly traded US options. Each of them is designed to help you in your search for the most suitable options trade based on the criteria and options strategy you selected. They are both part of one combined service – Options Scanner Suite.

Now, let’s take a closer look at the main Advanced Ranker functionalities.

Advanced Ranker Modules

First step when starting the search is to define the Group of Stocks (Stock Universe) which you want to consider for scan. There is already a number of pre-defined stock groups that you can use as filters – for instance, components of major indices or regional search (US, Europe or Canada). On top of this you can limit the search to your customized group of stocks that can be created in “My Favorites” section on the website. The stock price level can be used as a search filter as well.

Ranking can be performed through four available variables:

  • Implied Volatility Index
  • Historical Volatility
  • Call Put IV index Ratio
  • Correlation


Fig. 1. Stock Group Selection

1. Implied Volatility Index Tab


Fig. 2. IV Index Tab

First, we have to select one of the five available ranking criteria our results will be based on. The calculation of those ranking criteria is presented in table below.

ParametersCalculation method
Implied VolaAbsolute value of Implied volatility index
Implied Vola as a % change from yesterday's IV(IVclose – IVprev) / IVprev
Implied Vola as ABS change from yesterday's IVIVclose– IVprev
Implied Vola as a % of HVIVclose/ HVclose
Implied Vola as a scaled % of IV Hi/Low range(IVclose – IV52wklow) / (IV52wkhigh - IV52wklow)

Where:

  • IVclose is Implied Volatility Index as of yesterday’s close.
  • IVprev is implied volatility index as of previous close.
  • IV52wklow is implied volatility index 1year low.
  • IV52wkhigh is implied volatility index 1year high.
  • HV is historical volatility close value.

The screen shot below shows us an example of the search result that would be returned in response to our query.


Fig. 3. IV Index Search Results

2. Historical Volatility Tab

Here again, exactly as in the previous section, we have to make a selection from the four available ranking criteria, in this case, based on the Historical Volatility(HV).

The result set contains HV last, HV absolute Change, HV Percentile Change, 52 week HV High/ Low and HV index.


Fig. 4. Historical Volatility Search Results

3. Call / Put IV Index Ratio Tab

Exactly as its name telling us, this ranking criterion is based on the Call/Put IV Index Ratio. The search results would return us both Call and Put IV Indexes as well as Volatility Skew value.


Fig. 5. Call/Put IV Index Ratio Search Results

4. Correlation

The Correlation search will help us to find the stocks having higher or lower degree of correlation to the main regional index (for US stocks it will be SPX index).

If the correlation value ranges between ‘0’ and ‘100’ this stock is said to be positively correlated to the index. On the other hand, when the correlation coefficient falls in the range between ‘-100’ and ‘0’ such stock would have a negative correlation to the index.


Fig. 6. Correlation Search Results

Example of Advanced Ranker Usage

Let’s assume that we want to find the stocks to consider for taking a short position. We will make this search in two stages, using both Advanced Ranker and Stock Sentiment Ranker tools. First step is to find with help of Advanced Ranker the stocks having higher risk level i.e. with higher IV index. Usually, such stocks are expected to make a bigger move in a short period of time. This move could be actually in either direction. Once we have the results from Advanced Ranker, we will check them in the Stock Sentiment for directional indication. We only want to search among 200 US stocks with the highest options traded volume. Moreover, we only want to look for the stocks with the current market price of US$20 or above. Basing on the above assumptions, our search would have the following steps:

  1. Selection of the stock search universe – “Top 200 (Options Volume)” – Top 200 US stocks with the highest options traded volume (we’re looking for highly liquid instruments only)
  2. Minimum stock price is set at US$20
  3. In the first column we check ‘Implied Vola’ – we assumed that our search will be based on the implied volatility.
  4. In the “IV Index” column we check ‘Mean’. In this case the ranking will be based on the average IV of Calls and Puts.
  5. IV Term – number of calendar days to expiry of a virtual option. We select IV term 30 days. It can be either, from 30 to 180, depending on your trading horizon.
  6. HV Term – in this particular example we skip this column since our search will only be based on IV Index. Historical volatility will not be taken into account.
  7. “Quantity of Stocks to be viewed” column is quite self explanatory. We select the number of results that will be returned. In our example we want 5 stocks to be picked up.
  8. Finally, in the last column we selected ‘Top ranked only’ meaning that we want to see the stocks with the highest implied volatility. If, on the other hand, we wanted to see the stocks with the lowest IV index we would select ‘Bottom ranked only’.


Fig. 7. Example AR Search

In the screenshot below we can see the search results from our example. A Hint – by clicking on the stock name from the left column, you can directly access this stock options related information from our Basic Options service.


Fig. 8. Example AR result set

According to our search criteria, the returned results show us the list of stocks with the highest IV index.

Now, we will insert, one by one, the results from the Advanced Ranker in the Stock Sentiment Ranker. This tool is based on a combination of historical, technical, options-derived, and fundamental data and could be equally useful for both stock traders and options traders. Let’s see what we got. The results are presented in the table below.

STOCKBUYSELLHOLDSENTIMENT
IIG:AMEX (Imergent Inc)145Bearish
NFLX:NASDAQ (NETFLIX INC)243Moderately Bearish
NTRI:NASDAQ (NutriSystem Inc)243Moderately Bearish
NFI:NYSE (NOVASTAR FINANCIAL INC)244Moderately Bearish
BIDU:NASDAQ (Baidu.com Inc)414Bullish

As we can see, four out of five stocks selected with Advanced Ranker as having a higher risk level, have also a “Bearish” sentiment in the Stock Sentiment tool. So, we can consider taking a short position in those stocks.

To summarize, depending on the trading strategy, different combinations of tools available through our website can be used to fine tune the search for various trading opportunities.

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