Volatility Tracker for the week of February 8, 2010
Except for a brief interlude in mid-November, equity index options haven’t been this fairly valued in about a year, meaning that realized volatility has more closely matched the volatility implied by options prices. [5,6]
The February VIX futures contract closed above the March price on Friday -something that hasn’t happened on a weekly basis in quite some time. [7] It’s important not to read too much into this, since the front month contract…
Volatility Tracker for the week of February 1, 2010
This week saw realized volatility rise to meet last week’s spike in implied levels, although as I mentioned those spot implied levels weren’t easily sustainable. [2] I’m not the world’s greatest proponent of technical analysis, but the price charts for equities and oil deserve a look. Failure to revert toward recent averages would be further confirmation of the ill health of this market. [4,15]
With a less than one-point range over the past…
Volatility Tracker for the week of January 25, 2010
Implied volatility exploded in equities last week as markets were ravaged to the tune of…four per cent? [2]
The term structure of implied volatility and the ratio of implied to realized volatility all moved back towards even, indicating how accustomed we had become to substantially overpriced options and contangoed VIX futures. [6,7,8] Implied volatility is now unsustainably high -unsustainable, that is, unless you expect two-thirds of trading days to begin making swings of…
Volatility Tracker for January 19, 2010
Last week, I noted the very wide spread between short-term realized and implied volatilities. Although the selloff on Friday alleviated conditions slightly, [5] the spread is still large enough that traders inclined to be net sellers of options need not fear occasional daily increases in realized volatility. [6] The smartest trade in equity index options at this point might be to sell the wings and buy the guts on a dollar-neutral basis, delta-hedging as needed:…
Volatility Tracker for the Week of January 10, 2010
The continuing rally in equities has resulted in some remarkable volatility readings. 21-day realized volatility in the S&P 500 closed below 10% on Friday [5], and the spread between 21-day realized volatility and spot implied volatility 30 (calendar) days ago is wider than at any time in 2009.[6] While option implied volatility regularly tends to run higher than the realized volatility in the underlying, current readings are extreme. Since equity volatility is…
Monday, February 8, 2010
2 Comments