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 and…
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, the majority rule. Here’s a…
Friday, May 29, 2009
As pictured below, equity indexes have been highly range-bound since the end of April. That trading range has been between about 470 and 510 in the Russell 2000, and 865 and 930 in the S&P 500. I doubt that this range is likely to persist for much longer. Fans of technical analysis will note that SPX and RUT are caught in the narrow space between their respective 50- and 200-day moving averages: a break above or below either average will be…
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 monthly indexes of the Condor Options newsletter, the Credit Suisse/Tremont Equity Market Neutral…
Friday, January 16, 2009
In this mini-series, we’re examining the value of beta as a measurement of risk. In this post, we want to examine how the betas of some popular stocks, indexes, and ETFs changed during 2008 and especially during the fall crash. First, we should clarify exactly what we’re measuring. What is beta? Beta is metric that describes the systemic risk of an asset or portfolio. Because it is not possible to alleviate all risk by simple diversification, investors and traders use beta to…
Sunday, August 2, 2009
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