Condor Options

Volatility Tracker for the week of September 14, 2009

The dollar continued slouching toward Harare, and it is anybody’s guess whether the trend will reverse anytime soon. I track price and volatility changes in FXE, the USD/EUR ETF, at [2,3]. The implied volatility index for gold closed down nearly 6%, in line with the expectations expressed last week.

I can’t recommend enough giving a weekly glance at the Implied Daily Move table. These are simply the point and percentage changes (within one standard deviation) implied by the volatility index for each asset, deannualized to reflect daily movement. Where technical analysis might regard a VIX at $24 as somehow cheap – especially in relation to its levels one year ago – any casual market observer knows that, if anything, implied volatility in equities remains on the high side. We simply aren’t seeing 1.5% daily moves in the S&P 500, and until we do, traders should expect options to remain overpriced.