“A smooth sea never made a skilled mariner,” goes the proverb, and we've sailed some rough waters in the relatively brief history of our calendar-spread newsletter. As Jared noted in his review of Condor Options performance for the first quarter of 2010, we've demonstrated time and again that market-neutral strategies can and do work in all kinds of markets. Nevertheless, some environments are more challenging than others, and the measure of a strategy depends as much on how it performs when the going gets tough as when the market hands us an “easy” month...
Measurements of volatility typically refer to the standard deviation of returns over a specified period. That obviously includes returns both below and above the mean. In practice, however, investors tend to be concerned primarily with downside risk, leading them to regard returns differently: positive and negative logarithmic returns that are equally distant from the mean are not treated as such by investors. Negative surprises have a much greater effect on volatility than do positive ones – witness the explosion of…
Following up on our recent post about VIX futures, a reader asked:
If you want to get short volatility, why not just sell some of those VIX futures here, or maybe a vertical spread of VIX options? Why mess around with equity indexes at all?
Good question. The difference depends on what you mean by “volatility.” VIX futures are a pure vega play, which is to say that they give you exposure to changes in implied volatility, but that’s…
Sunday, April 25, 2010
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