Condor Options

Volatility Tracker for July 20, 2009

Equities had a strong week, but the view from the volatility front is not so clear – if anything, it favors caution rather than optimism. Volatility futures declined this week in absolute terms, but their term structures only steepened and have not changed their basic shape for several weeks now. [7] The VIX Premium Ratio has made another new high for the year. [8] Neither of these indicators are unqualifiedly bearish, but expectations of higher implied volatility in the future tend to coincide with falling prices.

The recent outperformance of the Nasdaq 100 has caused some investors to take last week’s rally more seriously, on the view that the technology sector should provide leadership for any sustainable advance. I confess I can’t make any sense of that piece of conventional wisdom in this economic context, except perhaps as a short-term technical point.

Last week’s bullish calls on oil and gold paid off, as the trades discussed are up 16% and 12%, respectively.

Instead of noting my expectation for the week ahead for volatility in the S&P 500 only, I’ve added a table below listing price and volatility expectations for several assets. That table is the only subjective item in this report, and should therefore be given the least attention.