Condor Options

Volatility Tracker for July 6, 2009

The mean reversion in volatility that many of us have been looking for finally started to kick in last week. [2] Additionally, the VIX Premium Ratio [8], while slightly off its 52-week highs, still registers as extreme; historically, short term (30 day) implied volatility has tended to rise in such situations. My short-term S&P 500 implied volatility bias is positive, and will likely remain so over the coming weeks for seasonal reasons.

A rise in implied volatility does not necessarily entail a fall in stock prices. At the moment, S&P 500 price movement lacks a clear direction [4], and the index has been less volatile over the past month than had been assumed by option premiums. [6] That relationship has shown no sign of subsiding, and until it does, it may pay to be a net seller of options over the short term.

Short-term S&P 500 Implied Volatility Bias: Positive