Archive | Market Commentary

What’s Working Now

Sunday, April 20, 2014


The easy approaches to the market that worked so well in 2012 and 2013 have performed poorly so far this year. We're more than a quarter through 2014, and the S&P 500 is up just 0.78% for the...

U.S. Market Risk Dashboard Update – No Warnings Signs, Yet

Tuesday, April 8, 2014


Given the fierce market selloff in recent sessions, I thought it would be helpful to check on our favored set of risk indicators for the U.S. market. As of the Monday close, VIX is above its two year median level, indicating a stronger bid for short-dated SPX premium. Longer term implied volatility is still well-anchored with SPY one year at the money options priced near the first quartile threshold. The other indicators are not at elevated levels, either: while…

Options markets aren’t convinced about the “seismic” scale of Russian intervention

Monday, March 3, 2014


On Sunday, Eurasia Group President Ian Bremmer wrote about the scale of recent events in Ukraine: “As Russia conducts direct military intervention in Ukraine, the US and Europe condemn it, and the Ukrainian army goes on high alert, we’re witnessing the most seismic geopolitical events since 9/11.” But the options market is not yet convinced of that assessment. Russian stocks fell 10% in early trading on Monday, but the reaction in the RSX ETF has been more bullish than…

Are Short Volatility ETPs Worse than SPY?

Monday, January 27, 2014


“‘Volatility Tourists’ Get Crushed,” exulted a column in Barron’s on Friday, referring to losses incurred that day by short volatility ETPs like XIV and SVXY.  I would approach the data a little differently. The median monthly return for XIV since inception is 5.0%. The trailing monthly return as of the January 24 close was -5.9%. XIV monthly returns, 2010-2014. As you can see above, investors who are interested in context of more than a few hours don’t have much to…

Neutral is the New Bearish

Monday, January 20, 2014

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I’ve 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 someones – strategists at major banks and asset managers who release price targets each year – are included here with black bars denoting forecasts for this year and last. Option implied volatility interpolated for a hypothetical year-end expiration is looking for a one standard deviation move up or down…

Dispersion and Stock-pickers’ Markets

Tuesday, December 31, 2013

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Here’s an interesting new paper from S&P Dow Jones Indices about dispersion and why it is a more valuable estimate than correlation: “[W]hat does it mean to say that a particular index (or portfolio) is diversified? Or more diversified than another, or more now than it was before? In order to speak meaningfully about the internal diversity of an index and its variation over time, quantitative metrics are required. The most commonly encountered is the correlation statistic, but…

The Rally No One Saw Coming

Thursday, December 19, 2013


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…

Trading Call Diagonal Spreads on BofA’s 10 Stocks for 2014

Tuesday, December 10, 2013


Bank of America Merrill Lynch’s equity and quant strategy team publishes a list of stocks each year, choosing one from each GICS sector. The stocks are selected based on quantitative screens and in-house analyst and year-ahead outlook expectations. The tickers for their 2014 list are below, and the full note is floating around at various places on the web. I thought it might be fun to check on what the options market has to say right now about these stocks,…

Euro option volatility hits the lowest level since 2007

Monday, November 18, 2013


Here’s a highlight from the November 17 issue of Volatility Tracker Plus, “Will Japan Repeat Itself? Steep US Term IV,” which is now available by subscription. In addition to bi-monthly trade ideas and market updates, we offer a 13-page, 4000-word guidebook and full archives access. Cross asset volatility monitor Developed market (ex-Japan) 2Y percentile ranks for 3M IV are all below 20%. Option premiums rose slightly for the…

Covered call indexes around the world

Monday, October 28, 2013

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Would you have been better off selling covered calls over the last few months, or just buying and holding the underlying asset? The following chart shows the returns for several buy-write indexes on various global equity indexes along with crude oil and gold. These indexes sell out of the money call options against long positions in the underlying assets, and returns are displayed here as the difference over the past one and three months between the buy-write indexes and the underlying…


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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