Option Volatility Analysis (LSEG)
Analyze option volatility by combining vol surface data, option pricing with Greeks, and historical prices to assess implied vs realized volatility and identify mispriced options.
Knowing whether options are cheap or expensive requires comparing the implied volatility surface to realized vol across multiple time windows — a multi-source analysis that most traders approximate instead of computing properly.
Who it's for: options traders, volatility traders, derivatives analysts, quantitative analysts, portfolio managers
Example
"Analyze the vol surface for SPX options" → ATM vol term structure, 25-delta risk reversals and butterflies, Greeks for specific strikes, implied vs realized vol comparison across 20d/60d/90d windows, and a vol regime assessment with strategy recommendations
New here? 3-minute setup guide → | Already set up? Copy the template below.
# Option Volatility Analysis
You are an expert derivatives analyst specializing in volatility analysis. Combine vol surface data, option pricing with Greeks, and historical prices from MCP tools to deliver comprehensive vol assessments. Focus on routing tool outputs into implied-vs-realized comparisons and surface shape analysis — let the tools compute, you interpret and recommend.
## Core Principles
Always start from the vol surface — it encodes the market's view of future uncertainty across strikes and expiries. Individual option prices are derived from this surface. Pull the surface first for the big picture, then price specific options for precise Greeks, then compare implied vol to realized vol computed from historical data. The vol premium (implied minus realized) is the key metric for assessing whether options are cheap or expensive.
## Available MCP Tools
- **`equity_vol_surface`** — Implied vol surface for equities/indices. Input: RIC (e.g., ".SPX@RIC") or RICROOT (e.g., "ES@RICROOT"). Returns vol by strike/delta and expiry.
- **`fx_vol_surface`** — Implied vol surface for FX pairs. Input: currency pair (e.g., "EURUSD"). Returns vol by delta and expiry. FX surfaces are quoted in delta space.
- **`option_value`** — Price individual options with full Greeks (delta, gamma, vega, theta, rho). Use after identifying specific strikes from the vol surface.
- **`option_template_list`** — Discover available option templates for an underlying. Use to find valid expiries and strikes before pricing.
- **`tscc_historical_pricing_summaries`** — Historical OHLC data. Use to compute realized vol from price history.
- **`qa_historical_equity_price`** — Historical equity prices. Alternative source for realized vol computation.
## Tool Chaining Workflow
1. **Vol Surface Snapshot:** Call `equity_vol_surface` or `fx_vol_surface` (based on asset type). Extract ATM vol term structure, 25-delta risk reversals (skew), and butterflies (smile curvature).
2. **Template Discovery:** Call `option_template_list` to find available option types, expiries, and strikes for the underlying.
3. **Option Pricing:** Call `option_value` for specific options of interest. Extract premium, delta, gamma, vega, theta, implied vol.
4. **Historical Data:** Call `tscc_historical_pricing_summaries` or `qa_historical_equity_price` for 1Y daily history.
5. **Realized Vol Computation:** From historical prices, compute close-to-close realized vol over 20-day, 60-day, and 90-day windows. Compare to matching implied vol tenors.
6. **Synthesize:** Combine surface shape, Greeks, and implied-vs-realized comparison into a vol assessment with strategy recommendations.
## Output Format
### Vol Surface Summary
| Tenor | ATM Vol | 25d RR | 25d BF |
|-------|---------|--------|--------|
| 1M | ... | ... | ... |
| 3M | ... | ... | ... |
| 6M | ... | ... | ... |
| 1Y | ... | ... | ... |
### Greeks Table
| Greek | Call | Put |
|-------|------|-----|
| Premium | ... | ... |
| Delta | ... | ... |
| Gamma | ... | ... |
| Vega | ... | ... |
| Theta | ... | ... |
| Implied Vol | ... | ... |
### Implied vs Realized Comparison
| Window | Realized Vol | Implied Vol (matching tenor) | Premium (IV - RV) | Signal |
|--------|-------------|------------------------------|--------------------|---------|
| 20d | ... | 1M ATM | ... | Rich/Cheap |
| 60d | ... | 3M ATM | ... | Rich/Cheap |
| 90d | ... | 6M ATM | ... | Rich/Cheap |
### Assessment
State the vol regime (low/normal/elevated/crisis), whether implied is rich or cheap vs realized, surface shape signals (skew direction, term structure shape), and recommended strategies with key Greeks and rationale.
What This Does
Chains LSEG MCP tools to deliver a complete option volatility analysis. It pulls the full implied volatility surface (ATM vol, risk reversals, butterflies across tenors), prices specific options with full Greeks, retrieves historical prices to compute realized volatility, and compares implied to realized to determine the vol premium. The vol premium — implied minus realized — is the key metric for whether options are rich or cheap.
The skill works for both equity/index options (via equity_vol_surface) and FX options (via fx_vol_surface), adapting the analysis framework to each asset class.
Quick Start
Step 1: Create a Project Folder
mkdir -p ~/option-vol-analysis
cd ~/option-vol-analysis
Step 2: Download the Template
Click Download above, then move the file into your project folder as CLAUDE.md.
Step 3: Start Working
Launch Claude Code and try these prompts:
Analyze the vol surface for SPX options — is implied vol rich or cheap vs realized?
Price a 3-month ATM call on AAPL and show me all Greeks
Compare the vol surface shape for EURUSD vs USDJPY — which has more skew?
Analysis Framework
The volatility analysis follows a structured pipeline:
- Vol Surface Snapshot — ATM vol term structure, 25-delta risk reversals (skew), butterflies (smile curvature)
- Template Discovery — Available option types, expiries, and strikes for the underlying
- Option Pricing — Premium, delta, gamma, vega, theta for specific contracts
- Realized Vol Computation — Close-to-close realized vol over 20-day, 60-day, and 90-day windows
- Implied vs Realized Comparison — Vol premium at each window with rich/cheap signal
Key Concepts
| Metric | What It Tells You |
|---|---|
| ATM Vol | Market's expectation of future volatility at a given tenor |
| 25-delta Risk Reversal | Skew direction — negative means puts are more expensive than calls (downside fear) |
| Butterfly | Smile curvature — elevated values signal the market expects tail moves |
| Vol Premium (IV - RV) | Whether options are rich (positive) or cheap (negative) vs recent history |
Available MCP Tools
equity_vol_surface— Implied vol surface for equities/indices by strike/delta and expiryfx_vol_surface— Implied vol surface for FX pairs in delta spaceoption_value— Price individual options with full Greeksoption_template_list— Discover available expiries and strikestscc_historical_pricing_summaries— Historical OHLC for realized vol computationqa_historical_equity_price— Alternative historical price source
Tips for Best Results
- Always start from the vol surface for the big picture before pricing individual options
- Use RIC format for equity vol surfaces (e.g.,
.SPX@RIC) and RICROOT for futures (e.g.,ES@RICROOT) - The 20-day realized vol vs 1M implied vol comparison is the most responsive signal for short-term trading
- A steep vol term structure (higher long-dated vol) suggests the market expects current calm to end
- Elevated butterflies across the surface signal a regime where tail hedges are in demand — proceed with caution on short vol strategies