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…
If the VIX could talk, right now it’d be saying, “The reports of my death have been greatly exaggerated.”
The titular claim of a recent Bloomberg article, “VIX Fails to Forecast S&P 500 Drop,” only makes sense in a world where nothing occurs beyond one standard deviation of predicted outcomes. The fact that the October decline was more than one standard deviation from the mean as predicted by the VIX is just another way of saying that the October decline was the…
In last month’s review, we noted that extremely volatile market environments can sometimes be your friend:
The good news is that, as we’ve been advising our subscribers, periods following intense market selloffs historically have been the most profitable ones for our strategy, and as implied volatility has already declined from its earlier peaks, we are already seeing some fantastic profits on our positions for the November cycle. An elevated volatility environment is torturous for swing traders and ulcer-inducing for stock investors,…
Two types of traders really thrived in October – the uber-bearish, and the nimble. Since our Condor Options newsletter follows a non-directional strategy, we aren’t poised to profit from market swings. But we do try to be nimble, and subscribers were subjected to a rather unrelenting series of pleas for caution and for a move to cash throughout September and October.
On September 12, we said that we were “trading small” and were “cautious – as we get conflicting high-volume moves back…
It’s been interesting to watch the VIX futures over the past few weeks. While the action in SPX options has pushed the cash VIX up to fascinating extremes, the longer-dated VIX futures have been somewhat less responsive, as you’d expect. Which is not to say that VIX futures have been unresponsive.
The chart above displays the cash VIX and current VIX futures prices as of about 10:00AM EST on October 17, 2008. This term structure says two significant things:
1. The market makers…
Monday, December 14, 2009
Comments Off