Condor Options

The following chart displays the 10, 30, 60, and 90 day historical volatility of SPX since August 2008 (click to embiggen).

The slowest-moving reading above, the 90 day, has just ticked down from the plateau formed earlier this week around 58%, and the 60 day historical volatility has leveled off as well.  That’s actually not very significant in and of itself: these are moving windows and at a certain point even the longer-dated lookbacks will only include days since “everything changed” and we started getting 2%+ daily moves as a matter of course.  In other words, the only way the 90 day volatility wouldn’t start to flatten out is if we kept getting more and more volatile, eventually swinging lock-limit up and down every single day.  And hey, this isn’t China, yet.

The 30 day reading sheds some more light on the situation: while the 79.11 reading on 11/21/08 was the actual top, that was basically no  higher than the levels we saw on 10/28 and 11/07, meaning that the 30 day SPX historical volatility has been flat-to-down for about a month now.  That’s why, as outrageous and counter-intuitive as it seems, selling premium hasn’t been such a bad idea over the past month.

Also keep in mind that historical volatility isn’t forward-looking – it knows nothing of what options are implying – so if you think that the holidays should induce some quietude in the markets, you could expect all of these lines to drift lower.  As it happens, options traders agree with you: the VIX (the 30-day implied volatility in SPX options) is around 56.50, the VXV (93-day version) is at 55.19, and the VIX:VXV ratio is finally back within the realm of reason at 1.024.