Volatility Tracker for the week of October 26, 2009
As I’ve noted on many occasions here, the relationship between spot VIX and longer-dated VIX estimates has not “worked” as a directional indicator for at least several months. [7,8] This looks like a genuine puzzle: the premium VIX futures traders are willing to pay and/or requiring in order to sell is too steep and has been too persistent to be dismissed as a phenomenon typical of the “wall of worry” that bull…
Volatility Tracker for the week of September 8, 2009
The biggest mover last week on the volatility front was gold, as the “gold VIX” (GVZ) closed 40% higher. [2,3] Recall that when equity index prices rise, implied volatility typically falls; this inverse relationship does not hold for gold and many other commodities. On the contrary, the volatility implied by option prices will often rise with commodity price increases -a state of affairs with significant implications for option traders. We are short…
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…
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…
We are publishing a new weekly research note, Volatility Tracker, which is intended to offer an overview of changes in realized and implied volatility in relevant markets:
Volatility Tracker for March 28, 2009
Many of the charts included will be familiar to readers of this blog, and we plan to expand the scope beyond the S&P 500 in the coming weeks. We are sincerely interested in ideas you may have for new items to include in the report. Our opening comment is…
Monday, October 26, 2009
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