Can implied volatility indicator be coded for MT4

Can any coder please code a volatility indicator for MT4 which can predict the probability of the future volatility through an indicator based on the spot price feed?

I am trying to find entry points for currency options as well as monitor the trades on standard MT4 platform.

For directionless trade, we need the strike prices to be displayed on the chart. my high low does that, and we need to monitor the volatility and keep adjusting to ensure options remain OTM by tracking Vega and Delta. A 100% per year return on margin money invested is normal if one keeps adjusting when the price gets volatile and crosses the high and low boundaries.

For directional trade, we need an indicator as per the strategy. I have tried to make it look simpler by choosing overbought/oversold strategy indicator of highlowmidpoint.

Trading with directional bias is like trading spot fx but without having the necessity of have Stop Loss, which can be an immediate loss when it is hit, and giving a lot of opportunities to be wrong. Buying options and keeping it for a long time can be counter-productive. Selling options is what most people do when they have enough margin in their account.

Buying and selling of the underlying (EurUsd futures), call and put options are involved. An experienced spot fx trader can learn to trade fx options in couple of days.
No rocket science. Educators make it look like complex but it is not. If sufficient interest is shown here to learn it, I can discuss strategies.

Volatility plays an important part in selection of the options. I am attaching indicators which supposed to calculate historic volatility.

Historic volatility and Implied volatility indicators are what I am looking for. I am now busing Bollinger Band as implied volatility indicator.
Is it possible to mimic BB as predictor of Implied volatility indicator by inputting actual implied data from the option chain and putting another input of +/2 of percentage wise as the predicting factor?


If the indicator print overlays at the bottom like the one is done for resistance and support in the attached chart.

Option trading provides an opportunity to make quick money if you are good at forecasting direction . Instead of putting a stoploss, buy options and get a chance to be wrong several times and can break even depending on the accuracy of the forecast.

From the attached chart, you can see you get a lot of opportunites to hit your target without really worrying about stop loss. Your timing should be good . You have to select known volatile period (Economic events are known in advance) to buy options. Broker won't ask you for margin deposit and you can buy an option as a lottrey ticket and try several times. If it the prices stall, then you have to get out as everyday your position will start losing money even if the price does not drop.

How to use Implied volatility data to trade spot fx?

This article is reproduced from a forex community blog written by Adrian WS

Implied volatility(IV or vol) in essence is the expected change in price over a given period and is a useful, if not, slightly peculiar indicator. As IV is a factor in option pricing models with all other things being equal (as in strike price, duration etc) the higher the IV the higher the "price" of the option.

To demonstrate this point clearly we can see below a 1 month EURUSD at the money option contract. On the left hand scale we can see the Implied volatility as a number, often expressed in %. And on the Right scale, we have the premium on the same option.

https://ci3.googleusercontent.com/pr...2/image429.jpg

Here, we can seethe premium (price) is 100 pips or 0.01 (in EURUSD quotes) and it can be seen how the premium fluctuates perfectly with Implied Volatility.

So now that we have the basic idea that the IV is correlated to the "price" of the premium we can use this to analyse in various ways.

Risk Reversals:

An FX risk reversal(RRs) is simply put as the difference between the implied volatility between a Put contract and a call contract that are below and above the current spot price respectively. Simply put IV of call - IV of put.

The market standardfor Risk reversals is using the 25 delta contracts. Now this is mostly arbitrary for the analysis, but for ease of understanding I've attached a chart showing the strike prices for 25 delta calls and 25 delta puts.

https://ci5.googleusercontent.com/pr...2/image933.jpg

What is crucial from here is the idea the the Put contracts are below spot price and Calls are above. It is also to note for the next image that the lower the delta, the further away from spot the contract strike price is. I.e. 10 delta is farther from Spot than 25 delta and 40 delta etc.

so we bring this onwards and we can construct what is called a Volatility smile for the EURUSD for the 1 month maturity.

https://ci4.googleusercontent.com/pr...2/image441.jpg

So here we have IVon the y-axis and the 1 month contracts defined by delta. What we can clearly see is that the smile isn't symmetrical and this leads to how we can analyse the options markets.

Linking back to the idea that IV is proportional to the price of a contract, then we can see that the price of Put contracts is much greater than that of calls. So what does this tell us?

Well simply, there is greater demand for puts than calls - simply because greater demand leads to higher prices. When someone buys a put, that is a bearish trade, and when someone buys a call it is bullish, so this tells us there is more demand to be bearish the EURUSD over the next 1 month than bullish.

BUT, this is a snapshot against a single time period, it is not much use when comparing over time, because you don't know if this line was steeper or shallower than the previous day or week etc etc.

https://ci4.googleusercontent.com/pr...2/image919.jpg

So here we have in red the rolling 1 month 25 delta risk reversal (the difference in IV between the 25 delta call and put).

As we can see thereis a very strong correlation, and so there should be. As the line moves up, the market is becoming relatively more bullish, as the change demand for calls is greater than change in demand for puts. This idea can also be easily considered
on the downside too.

Use in Trading:


Here is another,potentially tradable example for the AUDUSD and AUD 1 month 25D RR (red)

https://ci3.googleusercontent.com/pr...2/image437.jpg

So what we can see here is that they were highly correlated until recently.

Where the 25D RR all of a sudden stopped following the AUDUSD and started moving higher quite fast.

What this means is that options traders were getting very bullish on the AUDUSD as the demand for calls was rising relative to puts.

This will result in one of two things; either the options market will be right, and the AUDUSD will rise. Or, they are wrong and they will have to cover their positions.

In the first case,the options market is looking for a short squeeze in the spot market, where those short are paying each day a small swap to hold short, and the longer it doesn't drop the more they lose, and so eventually they decide to buy back their positions and as such the spot price rises.

In the latter case,the options markets are very bullish and if they are proved wrong by the time their options expire, they will need to delta and gamma hedge so as to reduce exposure and this will force the price lower as well as the Risk reversal.

Either way, I hope that this article has helped in understanding how one can look at the idea of Implied volatility being proportional to price and then using this to analyse the positioning in the marketplace, and then looking for potential trade ideas based on this.

thanks for your efforts. I love risk reversal and implied volatility and I use it everyday.
answering your first question,,, autochartist has a volatility indicator.
search it in youtube and you would find more info...

cheers

HI arjang,

Thank you for your information.

Is the chart showing the same indicator printing time?

What is the sub-window showing?

thank you.

yes, thats just an expected range, it does update in real time visibly, and sub window is just a simple RSI!
I mean, depends on what you want and what you pay.
obviously there are so much to volatility, historical, implied, seasonal, their comparison to each other, Cones, ATM OTM ...

I myself use OTM volatility 25D RR.

suffice to say that Autochartis has a decent one for retail section.

Where are you trading currency options?

I've been doing Nadex options for a few years and had IV worked out but the library I was using ceased working on one of the MT4 updates.

Im in Canada/Vancouver,
thinkorswim and/or CIBC investor edge are both good.

btw I was talking about option trading not "binary option" )
https://en.wikipedia.org/wiki/Option_(finance)

Nadex Binaries and Spread Options aren't the same as the bucket shop binaries, just fyi. Besides IV is IV regardless of the instrument type.

Ok I found two indicators which I hope can help predict implied volatility .
Can you please use both of them separately to mimick on MT4 with a view to predict future implied volatility and output as you have done?
And post the template and the indicator which is plotting future volatility in different TF.
Thank you.

Can you please post this prediction (in minutes) indicator?
Is it Fibonacchi indicator marked in minutes?
Thank you.