Condor Options

Volatility Tracker for May 31, 2009

Volatility marches ever lower. Backward-looking realized volatility tells a story of markets recovering from what – if the “green shoots” camp is right – will be a bottom that should hold for a decade; implied volatility likewise continues its steady push back toward the high end of what used to count as normal. Option sellers may be getting anxious about their recent good fortune, but none of the indicators below are suggesting any extreme conditions or changes in the trend; until they do, it makes sense to remain neutral-to-bearish on volatility. (Although see the blog feature from last week regarding long vega exposure.)

I’m introducing a new feature this week. The table at right shows the expected daily move (within one standard deviation) implied by each underlying asset’s implied volatility index. When looked at in these terms, it becomes clear how high implied volatility remains. Note that I’m using the same ETFs for gold, oil, and US/EUR as indicated in [2], since these are the underlying assets used for calculating the CBOE indexes.

Short-term S&P 500 Volatility Bias: Neutral