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…
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 November 16, 2009
Equity index options are about as evenly priced as they’ve been in some time [5,6], but another continuation of the intermediate-term rally would mean more disappointment for option buyers, especially those who entered new positions in early November.
The ratio of short-and long-term (Jan 2010 vs. Jan 2011) implied correlation is getting noisier, but is also challenging its lows for the year. At the Volatility Trading Summit earlier this month, several…
Volatility Tracker for the week of November 1, 2009
Equity markets have been drunk on the wine of federal stimulus for most of this year. While the increased volatility in the latter half of last week could amount to a mere hiccup in the reflation rally, indicators suggest that more participants are concerned about an equity market “hangover” than at any time since the market bottom. The transition to a different market environment may have just occurred, and in the…
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…
Monday, January 25, 2010
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