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 making swings of…
Volatility Tracker for the week of December 14, 2009
My sense of the markets at this juncture is that elevated implied correlations are truthful, even oracular, [10] with too-high index implied volatility representing not so much the jump risk with which the VIX is usually associated as the unwelcome prospect of individual equities tracking each other too closely. The most urgent scenario is of a strengthening dollar and unwinding “risk trade” in which good and bad companies are punished alike, and…
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 participants voiced…
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 [10]…
Volatility Tracker for the week of August 17, 2009
Conventionally, equity prices and implied volatility are inversely correlated, meaning that traders who expect a price decline should be net buyers of options. But as long as the ratio of lagged implied and realized volatility remains this high, [5,6] it makes sense to be a net seller of equity index options, even alongside the expectation of a modest price decline. Regarding index prices, I would only mention that an “overbought” condition can…
Monday, January 25, 2010
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