Felix Salmon is doubtful about whether it is possible to hedge tail risk, and I wholeheartedly agree with the data he cites showing that, of eight major asset classes, only volatility and managed futures offer genuine non-correlation to market returns. In fact, I’ll go a step further: I’m not that enthusiastic about the benefits of managed futures, at least in their current form. As a registered commodity trading advisor, I’ve seen the sorts of strategies that most of…
Equity investors who want a broad-based hedge have essentially three vehicles from which to choose: equity index options (SPY, SPX, ES, etc.), VIX futures (or their ETF permutations), and VIX options. In this piece, Larry McMillan makes the case for using VIX options instead of SPX derivatives, and this is his best argument:
In my opinion, the purchase of VIX calls is a much better, more dynamic way, to approach protection. That is because VIX will explode…
My colleague at Expiring Monthly, Adam Warner, has taken people to task over the last several days for obsessing over the VIX, and especially for misapplying it:
OK, what’s wrong with this statement:
Look at that…$VIX drops below 20 and pigs fly again. Only reliable indicator that I know of that level.
If you answered “everything” you would be correct. But let’s see how far off the reservation someone can go in 140…
The iron condor newsletter returned about 4.3% in the first quarter this year, slightly beating the 4.2% return for the VTY benchmark. The newsletter did not outperform the S&P 500 on either an absolute or a risk-adjusted basis, which, based on the prior history of this strategy, says a bit more about the market than it does about us. In the review for Q4 2009, I mentioned the most common misconception about iron condors, namely that they are…
Volatility Tracker for the week of February 8, 2010
Except for a brief interlude in mid-November, equity index options haven’t been this fairly valued in about a year, meaning that realized volatility has more closely matched the volatility implied by options prices. [5,6]
The February VIX futures contract closed above the March price on Friday -something that hasn’t happened on a weekly basis in quite some time. [7] It’s important not to read too much into this, since the…
Wednesday, July 14, 2010
12 Comments