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...
Options markets are confirming the recent strength in stocks, and to such an extent that we may be looking at a new, calmer volatility environment for quite some time. That’s the conclusion of a note published this week by Goldman Sachs analysts Krag Gregory and Jose Gonzalo Rangel, who argue that S&P 500 implied volatility is shifting into a new distinct regime. They look at the history of prior CBOE Volatility Index (VIX) regimes and make the case that odds…
In a recent note, Goldman Sachs economist Alec Phillips wonders whether the market is becoming less sensitive to political brinksmanship:
(via Business Insider)
The chart shows the level of VIX in the run-up to the 2011 debt ceiling and 2012 fiscal cliff deadlines. Phillips’s question implies that since VIX was actually lower throughout December 2012, it may be that the market is, in Joe Weisenthal’s phrase, developing an immunity to Washington.
The first problem with this comparison is that…
One of the interesting things about Q4 equity returns was how little most of the world seemed to care about the U.S. fiscal cliff.
Except for SPY (yellow), equities around the world put together a pretty solid quarter. What’s interesting, though, is how high option premiums still are in some of these markets. For example, Brazil:
The blue line is the one month historical volatility of EWZ; the orange line shows the price of February EWZ volatility…
Traders are bidding up VIX futures this week and the front two months are flat. The front four contracts are plotted below – the narrower the range, the closer the term structure is to backwardation, which historically has been a very short-term bearish signal for the market.
First 4 VIX futures, Nov-Dec 2012. Source: CFE, Condor Options
While we wait:
Here’s a chart I sent out to clients last night as part of our weekly update. It tracks the ratio of three-month SPX implied volatility as measured by VXV to the trailing 3m historical volatility.
SPX 3-month volatility risk premium. Source: Yahoo!, Condor Options
What the chart shows is that three-month options are priced at more than 1.4 times the value of the actual rate of change in stocks over the last quarter. Options are usually a bit…
I got the chance to chat yesterday with Phil Pearlman of Stocktwits for Reuters TV. We were talking about VXAPL, the CBOE’s application of the popular VIX methodology to AAPL options.
Here are some additional points building on the ideas we covered there.
First, while VXAPL moves broadly in sync with equity index implied volatility, the idiosyncratic moves in the stock cause VXAPL to diverge at times. That makes it worth watching: this and the other…
Once you cut through the layers of purple prose and elective neologism, Nassim Nicholas Taleb’s central thesis is not hard to understand: people often know less than they think that they do, and some human affairs are arranged so that they are negatively, neutrally, or positively affected by surprising events. His prior work has focused on large, unlikely risks – cases where agents who think they are neutrally oriented or robust to surprises are actually fragile when the unexpected happens.…
The following charts give us a good look at the current state of equity market options and volatility. Whenever there is a turn lower in the market, people rush to look at what is happening in the cash VIX index. Watching VIX alone is too limiting. We are looking also at medium- and longer-term options and at the realized volatility of implied volatility.
Fig. 1. CBOE Volatility Index. Source: CBOE, Condor Options
First, the momentum of VIX has turned decisively…
The emerging post-election consensus is that the fiscal cliff is more likely to be addressed without roiling markets. President Obama, the theory goes, is stronger politically than he was in 2011, and Speaker Boehner also has more control over the Tea Party wing of the Republican party. The new power dynamic should make it easier for moderates to find a palatable mix of revenue increases and spending cuts.
This morning, John Carney mentioned an alternative view:
The…
As I mentioned yesterday morning to our clients, our momentum-based VIX signal has us avoiding new short volatility and long stock positions for the moment. If we see some additional large swings in the CBOE Volatility Index (VIX) over the next few days, a volatility-of-volatility estimate I follow will also signal a ratcheting down of exposure.
We can also look at the order flow in major index option products on Tuesday to gain some clarity about market sentiment.
fig.…
Thursday, May 9, 2013
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