Archive | Studies

VIX Option Activity and Market Returns (Update)

Monday, February 10, 2014

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The intuition around ratios of option trading volume is that large deviations from normal trading volume may indicate a significant change in investor sentiment, and especially a "capitulation"...

Backtesting Options Trading Strategies

Monday, April 12, 2010

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It is a relatively simple matter to backtest a strategy trading price-based expectations: a little spreadsheet know-how or, failing that, any of the scores of software packages now on offer will get the job done. But testing the historical performance of well-defined options strategies involves much more complexity, and imposes significantly greater data requirements. The difference between stocks/futures/forex and options is so great, in fact, that no retail platform today offers a straightforward way to run thorough tests of quantitative…

Research Bleg: Commitments of VIX Traders

Thursday, January 28, 2010

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If you hold a position larger than a specified threshold in a futures or options contract that is regulated by the CFTC, your clearing firm must report it and classify your position as either commercial or non-commercial (I prefer the clarity of the old “hedging vs speculative” language, but whatever).  Futures traders have been tracking these reports for years, but I’m not aware of any studies that analyze the history of VIX futures commitments, with the exception of a…

Bond Market Leadership

Wednesday, July 22, 2009

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Some people regard the bond market as the most mature financial market, providing discipline and stability where stock operators merely exhibit fear and greed. I’m not out to settle any internecine disputes here, but I do want to examine a strategy premised on the view that behavior in the bond market might tell us something useful about the equity market. Conventionally, investor preference for higher yield correlates with a positive overall economic outlook. Brett Steenbarger looks at this phenomenon…

The VIX is Fungible

Friday, July 17, 2009

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I propose the following rule of thumb for VIX interpretation: If you think some VIX movement entails a proposition p and movement in the other volatility indexes VXN, RVX, and VXD doesn’t entail p, you shouldn’t believe p. Why accept this rule? Because equity indexes are highly correlated, especially over the very short term, and volatility indexes are calculated using the same methodology, such that in the case of a divergence of one volatility index from the others,…

A Bullish Sign in the “Golden Cross”?

Thursday, July 2, 2009

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In case you’ve missed it, technical analysts have been atwitter over sightings of the mystical-sounding “golden cross”. Among the latest observations from the mainstream business press are a Barron’s online article posted yesterday and a Bloomberg piece from last week, but recent talk of the fabled Crux Aurea dates back at least as far as early June, when the daily chart of the Nasdaq Composite Index showed the 50-day simple moving average crossing above the 200-day…

Exponentially Curb Your Enthusiasm

Thursday, June 4, 2009

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Investors and the financial media have been excited of late about the S&P 500 crossing above its 200-day moving average: Harris Private Bank and Morgan Asset Management say the advance may indicate the bear market in U.S. equities that began in October 2007 is over, heralding more gains after a three- month, 39 percent increase. Analysts who base forecasts on price charts consider crossing above a moving average bullish because it shows stocks are rising faster than the long-term trend.…

Testing the Vervoort Crossover, Part 2

Wednesday, May 13, 2009

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In part 1, we examined the original version of a strategy that trades crossovers of two triple exponential moving averages.  At least on the S&P 500, the original version of the strategy was unprofitable, and the reverse strategy, while profitable, significantly underperformed merely buying and holding the index.  We suggested some ways to improve it: One of the obvious ways to try improving the strategy might be to add some exit conditions, trailing stops, or market filters: being in…

Moving Averages and Human Risk

Thursday, April 23, 2009

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Strategies that follow crosses of two moving averages have been studied to death, and in their plain vanilla form, they don’t seem to provide much of an edge over a buy and hold approach over the long term.  But what they lack in absolute performance they may make up in ease of use. Until a few months ago, neither a long/short nor a long-only 50/200 simple moving average crossover strategy outperformed the buy & hold approach to the S&P…

Emerging Markets May Be Due for a Rest

Saturday, April 18, 2009

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While the broad market rally since March 2008 has been breathtaking, returns over the same period in emerging market stocks have been even more significant: EEM, the ETF that tracks the MSCI Emerging Markets Index, is up 42% from its low on March 2nd versus a 29% return for the S&P 500 over roughly the same period. The chart below plots the 50-day moving average of the daily logarithmic return of EEM, subtracted from the daily logarithmic return of SPY. …

Testing the Vervoort Crossover, Part 1

Tuesday, April 7, 2009

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In two recent posts, ThinkScripter (a great new blog that features studies and strategies coded for the thinkScript language used on the thinkorswim platform) discusses a crossover strategy that Sylvain Vervoort originally published last year in Stocks & Commodities magazine. The primary components are two “zero-lag” triple exponential moving averages, using as price data: 1) the standard (high+low+close)/3 and 2) the Heikin-Ashi close (Heikin-Ashi is a method used for an alternate type of candlestick chart).  Using a period length…

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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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