I was honored to be included again in Business Insider‘s quarterly review of important charts. My contribution is below, and you should click through for some insightful comments from some of the best strategists and managers in the business.
If the consensus investment outlook for 2014 equity returns is “more of the same, but not quite as much,” this comparison provides some justification for that view. The chart shows SPDR S&P 500 ETF (SPY) prices and the option-implied forward range at the beginning of each year, using at the money implied volatility.* 2013 gains blew past anything the market was pricing in at the start of the year, and to a greater extent than in any recent year. This was a tougher year than usual for call writers, collar buyers, and anyone else who wasn’t simply naked long stocks.
* People have asked, so: the implied volatility ranges here use ex ante implied volatilities for one, three, six, nine, and twelve month options at each year’s inception. The title of this post is h/t @pawelmorski.