What's the implied Volatility?

How do I track implied volatility for options of a specific delta?

• I'm a newbie with respects to volatility trading and options. I recently purchased a book on the topic called "Trading Implied Volatility -An introduction" by Simon Gleadall. It's been one of the most informative books on options that come across and i'm learning a lot about the subject but there are a few things that i'm having trouble understanding. In one of the sections on "Trading the Curve", the author states: "The trader will have a measure of the relative value. For example, he may track the ratio of (-)10 delta put implied volatility to 10 delta call implied volatility for 3 month options...he is likely to look at a long comparable series of such ratios in the product. His strategy is likely to have some kind of trigger at which point the difference between the current ratio and the historic ratio is significant enough for him to want to trade." My question is about coming up with the series of say 10% delta call implied vols. How does one track this? If I were to look historically at all the option chains for a specific asset, would there ALWAYS exist an option that has roughly 3 months to expiration that has a delta of 10% that I could view as a series? If not, how would that series be arrived at?

• Answer:

  In order to do this one would need to fit the whole implied volatility surface and thus approximate the 3 months 10 delta call or put implied volatility. This task is not an easy one as even assuming good quality data, it turns out to be very hard to create an arbitrage-free surface.