Archive | Volatility

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

Tuesday, April 8, 2014

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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.

Doing What It Says on the Tin: The Value of Volatility ETPs

Tuesday, February 18, 2014

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The iPath S&P 500 VIX Short-Term Futures ETN (VXX) launched in 2009, but after five years and many billions in transactions, it’s still a widely misunderstood product in some quarters. All of the volatility ETPs are, to some extent. A recent post at the Inside Investing blog for CFA Institute walked through some of the most familiar complaints about VXX, and I was going to link to a comprehensive rebuttal in the comments, but I couldn’t find one. I’ve written…

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” among traders near the end of a significant trend. In 2013, I wrote about the research on put-call ratios using equity, equity index, and VIX options, and concluded that, whatever their value in earlier periods of market history, these indicators don’t appear to have any significant predictive value now. During…

Are Short Volatility ETPs Worse than SPY?

Monday, January 27, 2014

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“‘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…

VIX Portfolio Hedging (VXH) Strategy 2013 Performance Review

Monday, January 6, 2014

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In 2013, being maximally long stocks was the only game in town, and investors who sought the safety of hedging strategies lagged unhedged indexes. As we noted before, 2013 was a difficult year for call writers, collar buyers, and any other investors who gave up some upside return potential in exchange for a little protection. It was an unusual year. For some context, consider the drawdowns from peak annual equity that have been experienced by…

The Rally No One Saw Coming

Thursday, December 19, 2013

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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…

VXST, VIX, VXV, and the rest of the curve

Friday, October 11, 2013

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Rises in VIX and implied volatility in general tend to attract the attention of business reporters and other market watchers who do not usually follow options markets all that closely. I’ve seen several mentions recently, for instance, of the ratio of VIX to VXV as an indication of market stress, and some readers have asked whether I planned to write about this ratio sometime soon. The short answer is that I’ve been writing about VIX:VXV all along. The ratio of…

What the FOMC Did to Volatility

Thursday, September 19, 2013

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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…

Two recent publications: volatility of volatility and put-call ratios

Monday, September 16, 2013

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I wrote two articles this summer for Active Trader magazine. My article in the June 2013 issue, “Trading on uncertainty: Timing the volatility of volatility” explains the concept of the volatility of volatility with a portfolio return thought experiment, and then presents some hypothetical strategy returns using a basic volvol indicator, the standard deviation of daily changes in option implied volatility. I also look at the returns to a strategy that is short constant maturity one month VIX straddles,…

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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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