Russell Rhoads draws a great analogy between volatility spikes and a famous incident in show business history:
On May 6, 1994 Robert Francis Goldthwait made his...
Research is essential. Without it, it’s difficult to tell whether you aren’t just trading noise. Practical experience is essential, too. Without it, it’s difficult to find the limitations of your research. Here’s a story that played out in my mind last week. None of these are thoughts that haven’t been thought or written about extensively before, but the juxtaposition of a G-d’s eye view of markets with a minute-level look makes the point pretty well, I think.
First, some research…
Call options on individual stocks are more attractive now than at any time since 2004, and that holds true independently of any directional market view. The three reasons upside calls are inexpensive are that interest rates remain low, out of the money call implied volatility is low, and index implied correlation remains relatively high. That’s the argument of Deutsche Bank’s Rocky Fishman in a note earlier this month. The confluence of the first two factors is shown nicely in the…
Free talk: “Three Key Indicators for Forecasting Volatility”
More and more traders pay attention to option implied volatility and to indexes like VIX, but there is a lot of confusion about the best methods for using volatility to hedge portfolios and to generate alpha. This presentation will show how three key indicators allow investors to trade volatility in stocks and other assets. We will look at momentum effects in volatility time series, at the information in the VIX futures…
ETFs keep taking market share away from mutual funds, that much is well-known. In their 2012 review and 2013 outlook for the ETF industry, Deutsche Bank show how the trend away from equity mutual funds and into equity ETFs continued last year:
One place where mutual funds still have control is in fixed income, and the 2012 picture was a kind of continuation of 2011: the hunt for yield saw more money pouring into both fixed income funds and…
The policy changes in Japan are still one of the most exciting stories around, and in tonight’s presentation I’ll look at how option markets have reacted to the huge move in USD/JPY:
USD/JPY, 2012-2012. Source: FRED
One of the arguments in favor of a short-term pause in the trend is that trader positioning has gone pretty quickly from relatively low to epically overcrowded. COT data from the CFTC shows that, since 2008, yen shorts have never been this…
As we noted earlier today, some of the most interesting opportunities for volatility traders these days are outside of the U.S.
On January 10th, I’m giving a talk in partnership with TheStreet on where the volatility is right now in world equity markets and what investors can expect for the next year. In this “Volatility World Tour,” we’ll talk about Japan, Australia, Brazil, India, Mexico, and of course the U.S. and China.
The presentation is free but you’ll…
Mark Longo and Don Schlesinger host a great podcast called Volatility Views and I got to chat with them recently about options and my response to Nassim Taleb. Click through for the mp3 link and some more details about the episode:
Volatility Views 71: Condor Options Takes on Black Swans
Every options trader knows about or at least of the Black-Scholes-Merton (BSM) pricing model. Because it is the oldest formalized pricing model and only the first of many, some traders regard it as outdated and inferior. Perhaps it is a victim of the familiarity that breeds contempt. But a recent paper gives some reasons why traders should give BSM a second look.
Delta hedging is an essential component of any volatility trading strategy. When straddle buyers also buy…
Weekly options may be good for traders, but fragmenting the distribution of options order flow across time makes analysis more difficult. Making options contracts more granular allows investors and traders to take positions that match more precisely their own expectations, but the cost of this increase in precision is a decrease in the ease with which we can make sense of the market and, in some cases, a decrease in liquidity.
First, let’s get clear on why these tradeoffs matter.…
Thursday, May 9, 2013
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