A major story in late 2009 was the negative correlation between equities and the U.S. dollar. In the chart below, I show the correlation of the logarithmic daily price changes of the S&P 500 and the U.S. Dollar Index futures composite. It appears the attention has been well deserved: both the 3-month and 1-year rolling correlations are the lowest they’ve been in at least two decades.
No sooner than some investors began noticing the negative correlation, others started calling…
Volatility Tracker for the week of December 7, 2009
The jump in volatility indexes noted in our previous report was met with a similar decline last week.[2] The VIX could easily make a new 52-week low before 2009 is through. Gold implied volatility advanced sharply on Friday’s price decline [3], with GVZ closing just shy of my 30% short-term target. The shift in the volatility skew in gold deserves attention: if traders continue to pay higher premiums for downside protection…
Volatility Tracker for the week of November 23, 2009
News-making price changes in gold [11] have not been accompanied by any particularly noteworthy behavior in the options market. While it would be wrong to suggest that options in any way “anticipated” the gold rally, it is also fair to say that price action in the underlying has been roughly in line with the expectations given by option prices. Notice that the CBOE’s VIX-style gold volatility index (GVZ) has drifted between…
Volatility Tracker for the week of August 31, 2009
The CBOE Implied Correlation Index spiked to its highest level last week since the beginning of the rally that began this spring. [10] In a healthy, normally functioning market, companies that succeed will see their stock prices rise, while the stocks of failing companies will fall. In a healthy, normally functioning market, the stocks of winners and losers alike won’t rise or fall together in lock step; but the increase in…
Volatility Tracker for the week of July 27, 2009
Equities continued to rally last week in defiance of any “overbought” technical readings. [4] Nevertheless, until the contrary signals noted last week abate – specifically, the term structure of volatility futures [7] and the VIX Premium Ratio [8] – I don’t anticipate much upside potential. Note that the Nasdaq 100 Implied Volatility Index (VXN) rose on the week [2] – though this is just as likely due to out of the…
Friday, January 22, 2010
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