This script guages the probability of an underlying moving a certain amount on expiration day, to aid the popular "0 dte" strategy. The script counts how many next-day moves exceeded a given magnitude in the past, under similar conditions. The inputs are:
mark_mode: - "open": measures the magnitude as "open to close"--a true 0 dte. - "previous close": for lazy people who don't want to wake up early. measures magnitude from the previous day's close.
move_mode: - "percent": measures moves that exceed a given percentage. - "absolute": measures moves that exceed a point value.
move-dir: measure only up moves, down moves, or both. vol_model: the model for realized volatility. (may add more later). min_vol: only measure moves when realized vol is above this value. max_vol: only measure moves when realized vol is below this value. precision: number of digits printed in the output table.
These settings will count the number of trading days that closed 7% higher than the previous day's close, when the previous day's realized volatility (annualized) was between 20% and 50%. The outputs are:
- current vol: green plot. Today's realized vol. Shown for convenience. - max and min vol: red plots. Also shown for convenience. - count: the number of days that exceeded the chosen magnitude, when the previous day's realized volatility was within the chosen bounds. - total: the total number of days where realized volatility was within the chosen bounds - probability: count / total. the percentage of days that exceeded the move when volatility was within the bounds. - move: plotted as a purple line. purple "X" labels are plotted above - bars where the move exceeded the magnitude threshold and volatility was in-bounds. a "hit".
CONCLUSION
This script is based on the idea that realized volatility has some bearing on future volatility. By seeing what happened in the past when volatility was close to its current value, we may be able to assess the probability that our short put will be in the money, tomorrow, and our account devastated.
NOTE: Unlike many of my other scripts, all percentages--both inputs and outputs--are given in fractional form. E.g., 0.01 means 1%.
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- annualize volatility with 252, rather than 365 trading periods - fixed misnamed condition
- @ voided Thanks for sharing good script . Please correct me if i am wrong ---> Moving Mag 0.07 means 7% and Min Vol 0.2 & Max Vol 0.5 respectively 20% and 50% not matching with the statement "NOTE: Unlike many of my other scripts, all percentages--both inputs and outputs--are given in the fractional form. E.g., 0.01 means 1%."