The Rally No One Saw Coming

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.

Business Insider: Wall Street’s Brightest Minds Reveal THE MOST IMPORTANT CHARTS OF THE YEAR

* 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.

1 Comments For This Post

  1. Dallas Says:

    This chart provides a unique and insightful view of the past 8 years, but I do not understand how it “provides some justification” for the consensus view (or any prospective view) on 2014. To me it just looks a true outlier in the time series.

3 Trackbacks For This Post

  1. Thursday links: liberating the Internet | Abnormal Returns Says:

    [...] 2013 was a tough year for call sellers.  (Condor Options) [...]

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    [...] updated the chart we showed last month (“The Rally No One Saw Coming“) with the trading range for the S&P 500 for 2014. Some of the most widely-watched [...]

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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