Until recently, options traders seeking to find market volatility data had to rely on basic data from market data vendors, Excel spreadsheet functions or, at times, their own arithmetic, unless they used a proprietary trading system equipped with volatility tools. New York City-based iVolatility.com, however, has recently made the process easier and more thorough with its Web site, www.iVolatility.com.
"Traders are dependent on a source for volatility information, or they have to have a system that can be able to calculate the numbers for them," Ravi Jain, president of iVolatility.com, says. "The problem in the equity derivative world is that there are so many stocks and so many options. Having to calculate this implied volatility number for all of them is a mammoth task."
The site offers options traders and individual investors the ability to view such figures as an individual stock's current volatility, implied volatility (IV), historical volatility (HV), IV for calls and puts, as well as its volatility in correlation to the S&P 500. The Web site also offers volatility rankings and an options calculator, available to the user upon registering. Users can customize the site to monitor favorite stocks as well. All data is based on end-of-day closing market quotes, but Jain says iVolatility.com plans to add intra-day figures, updated every 15 minutes.
Though the company originally planned to incur a monthly $20 subscription fee for using the Web site, Jain said it recently decided to offer www.iVolatility.com's basic services for free. However, he said that most likely in early August, the Web site would offer several advanced features for which users will have to pay extra. Features will include an advanced options calculator allowing the user to play strategies and combinations of trades, and the ability to place request data that fits certain parameters through custom filters. A later release, Jain added, will allow the user to monitor his or her portfolio using the site's data.
Jain explained that the power of the Web site lies behind its database. Currently, at each day's close, a market data provider feeds the quotes into iVolatility's SQL servers, where C++ algorithms and routines filter, clean and process the data. A standard binomial function run in reverse is used to calculate the IV. Afterwards, an iVolatility.com team manually scans the data for abnormalities that must be fixed. In some cases, Jain says, market data vendors do not figure in announced dividends or fail to update their data when a stock splits. Once the process is complete, the data passes to a server hosted by iVolatility.com that displays the active server pages.
eGAR Technology, a technology consulting partner, implemented the Web site and programmed the databases and servers. Jain, who is also a principal at eGAR, says the company's financial services domain expertise allowed it to work with iVolatility.com in designing a site to meet options traders needs. As a result, Jain says, eGAR is an intellectual partner in the www.iVolatility.com and shares a financial stake.
Jon Najarian, president of Mercury Trading and founder of 1010WallSt.com, stressed the importance of volatility numbers in tracking particular stocks and markets, and he says iVolatility.com should thus be very useful for options traders. Currently, market data vendors, such as Track Data or Reuters, do provide volatility data, but it is usually less thorough, less "user-friendly" and more expensive when compared with www.iVolatility.com, he says. In addition, Najarian says, some proprietary trading systems, like Mercury's or Goldman Sachs', do provide such data, but few firms own systems with such capabilities.
"There really aren't very many sites that will tell you what the volatility is and what the historical volatility has been on the Internet," Najarian said. "Professional traders like me have them available to us through a variety of services, but most smaller investors don't want to pay $3,000 a month for the types of machines that we use to provide it."
In the past, traders following a stock's volatility were forced to download prices everyday, plug them into a matrix or an Excel spreadsheet that has the formula and then calculate the volatility. Najarian notes this process was time consuming and expensive if the trader wanted live quotes.
Currently, www.iVolatility.com has approximately 600 registered users, including buy-side, sell-side and individual investors. In addition, Jain says, the company is currently considering deals that will provide iVolatility data directly to investment firms' trading systems.