Although the major equity indexes are highly correlated, they tend to diverge in meaningful ways on a day-to-day basis. The same is true for the implied volatility indexes that track equities. It’s also common for equities and implied volatility to move inversely on a daily basis – the expectation is that, most of the time, if the S&P 500 closes up, the VIX is likely to close down. It’s very uncommon for both the equity indexes to all close higher…
Friday, July 17, 2009
I propose the following rule of thumb for VIX interpretation: If you think some VIX movement entails a proposition p and movement in the other volatility indexes VXN, RVX, and VXD doesn’t entail p, you shouldn’t believe p. Why accept this rule? Because equity indexes are highly correlated, especially over the very short term, and volatility indexes are calculated using the same methodology, such that in the case of a divergence of one volatility index from the others,…
Tuesday, March 3, 2009
February 2009 was one of the most profitable months ever for our newsletter. We were able to enter several positions at optimal moments in the cycle, and a cooperative market allowed us to let some trades expire worthless. Performance Comparison S&P 500: -9.42% Dow Jones Industrials: -11.06% Russell 2000: -11.90% S&P 500 Covered Call Fund: -11.89% Condor Options VAMI: 3.10% Note: the period measured is from expiration to expiration. Our updated Performance page compares the value-added…
Monday, January 5, 2009
The most interesting feature of December 2008 was the rate at which volatility – both historical and implied – declined. While we could view this decline as simply the counterpart to the volatility explosion we saw in the fall, the changes were still very interesting to watch. A rapidly falling volatility environment was ideal for the December expiration positions we published, though it also presented some challenges for the iron condor strategy we follow in our newsletter: specifically, we…
Tuesday, September 30, 2008
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While we’ve been communicating more actively than usual with subscribers, things have been somewhat quieter here on the free part of the site. The reason? We don’t expect historical and statistical studies to be nearly as helpful in a market environment like this one. And since we don’t have any unique insight into the likelihood of various political and economic events coming to pass, we figure your RSS reader or pony express boy or whatever is already loaded with…
Sunday, August 2, 2009
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