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...

Stock returns when volatility is low and options traders are stressed

Monday, October 7, 2013


In a previous post, we showed that the spread between one month and three month at the money implied volatility in S&P 500 index options was near the highs for the year. That post also mentioned that it was unusual to see implied volatility term structure so high even while the realized volatility of equity returns has been particularly low. To quantify that intuition, here’s a chart, using Russell 2000 data this time for variety: Most investors know…

Risk or reward? S&P implied volatility spread near YTD highs

Friday, October 4, 2013


We noted to clients earlier this week that VIX option premiums were finally catching a bid, consistent with market participants repricing risk as the debt ceiling looms closer. Thursday’s broad market selloff was a continuation of that trend, accompanied as it was by large increases in equity and equity index implied volatility. We also saw significant movement in the term structure of implied volatility. A chart of the difference between one and three month at the money S&P implied volatility…

What the FOMC Did to Volatility

Thursday, September 19, 2013


I’m attaching a cross asset volatility monitor that allows you to compare price and volatility changes across equity, commodity, and currency markets. After Wednesday’s post-Fed rally, several things stand out in the realm of option implied volatility.^ Cross asset volatility monitor. Source: Condor Options Emerging markets: the biggest percentage change in three month implied vol over the last week was in emerging markets, as investors took the “no taper” signal as a reason to cover emerging market shorts. EEM…

The Good News About Correlation

Sunday, August 18, 2013

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High implied correlation is a like an ongoing murmur of doubt about the ability of individual equities to trade on their own fundamentals. In “Two Themes to Watch in 2013” and “Three Reasons Equity Calls are Inexpensive,” I noted that one of the longest-lasting effects of the financial crisis was the high level of equity correlation implied by options on S&P 500 constituent stocks. At this time of the year in 2011 and 2012, the next-nearest CBOE implied correlation

Australian Risk Premiums: Slower China, Faster Dollar

Sunday, August 4, 2013


When talk turns to slower growth in China, one of the most popular topics has been when and to what extent less demand for commodities would start to catch up to Australia, and when the Reserve Bank of Australia would start cutting interest rates to pick up the slack. It took longer than expected for that story to play out this year, especially where the AUD was concerned, but we finally got there. What’s interesting now is how little the…

The Post-Crisis Data Point

Monday, July 15, 2013


After the financial crisis, there were fewer asset classes that people were willing to describe as diversifiers. They were/are: “managed futures,” which generally just means long/short commodity trend-following; fixed income, but really just U.S. Treasury bonds and notes; option implied volatility. More on that last item in a moment. The notion of commodities being treated as a separate asset class has always seemed a little strange. It’s not as though commodities are sui generis economic Robinsons Crusoe. Many of…

Stressed term structures in bonds, stocks, and real estate

Friday, June 21, 2013


It’s absolutely nuts that implied volatility has exploded higher on such a small decline from recent highs. In the attached video, I explain this week’s selloff by looking at term structure changes in TLT, SPX, and IYR. Note in particular the divergence between IYR and the S&P 500. Flatter term structure in option implied vol is one of the most meaningful indicators of changes in sentiment, because especially for longer-dated comparisons, it takes a lot more to move the…

What the S&P 500 term structure said

Monday, June 10, 2013


In equity markets, a selloff doesn’t really count until it gets the term structure up. For instance, here’s the ratio of SPY 3 month implied volatility to one year implied volatility since 2012: The only two occasions when we got close to backwardation here were in May 2012 and the end of December 2012 (fiscal cliff). In 2013, the mean level has been about 0.83, which just means that 3 month SPY options were typically about 83% as expensive,…

How a friendlier Germany might affect options markets

Tuesday, May 28, 2013


An article published in Der Spiegel on Monday is causing quite a stir for its suggestion of a policy about-face by Germany. Angela Merkel and Wolfgang Schäuble have been viewed since the banking crisis began as inflexible and uninformed for their pursuit of fiscal austerity in the face of a balance-sheet recession. Now, it looks like domestic political heat may be causing the German fiscal ice to thaw. To come to grips with the problem, Merkel and Schäuble…

One of these things took years to write

Tuesday, May 14, 2013


A full calendar around graduation means I haven’t had time to update the blog with the usual, but in lieu of research I thought I’d do a small dump here of some open browser tabs, in case you find some of these useful, too: Nemo’s Bond Crash Course – One of my resolutions for 2013 was to understand fixed income better. His recent bitcoin explainer reminded me of this bond intro. Also: @groditi, David Schawel Goldman: AUD/USD


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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