Crude has been hammered pretty hard in recent weeks. My instincts tend, like yours probably do, toward being a net seller of options when implied volatility has become historically expensive. But it’s also a good idea to respect the current trend, as I mention here:
While capturing historically high implied volatility is often a profitable approach, a price trend this strong should be respected, so any short volatility trade should either be long some gamma or should have a delta bias…
Volatility Tracker for the week of January 25, 2010
Implied volatility exploded in equities last week as markets were ravaged to the tune of…four per cent? [2]
The term structure of implied volatility and the ratio of implied to realized volatility all moved back towards even, indicating how accustomed we had become to substantially overpriced options and contangoed VIX futures. [6,7,8] Implied volatility is now unsustainably high -unsustainable, that is, unless you expect two-thirds of trading days to begin making swings of…
For an options trader, one of the most remarkable aspects of the 2008 financial crisis was that it featured months in which many options closed in or near the money when, even weeks before, they were deep out-of-the-money (DOTM) and “worthless.” The lesson is that ostensibly overpriced options are totally devoid of value, until they aren’t. This is not a new lesson: academics have spent decades creating and testing different models (Hull and White, Heston, Dupire, etc.) to better accommodate…
Volatility Tracker for the week of November 23, 2009
News-making price changes in gold [11] have not been accompanied by any particularly noteworthy behavior in the options market. While it would be wrong to suggest that options in any way “anticipated” the gold rally, it is also fair to say that price action in the underlying has been roughly in line with the expectations given by option prices. Notice that the CBOE’s VIX-style gold volatility index (GVZ) has drifted between 20…
One average of the volume of contracts traded in VIX futures recently exceeded the level observed during the financial crisis of 2008, indicating that sophisticated traders and investors may be preparing for an end to the recent run-up in equity prices. The chart below shows the volume of trading in VIX futures (VX) since January 2008, along with a 20-day simple moving average of that volume; as evident there, the average volume in recent weeks is greater than at any…
Tuesday, May 25, 2010
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