Archive | Volatility Tracker

Volatility Tracker: Reversion to the Trend

Monday, November 9, 2009

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Volatility Tracker for the week of November 8, 2009 I wondered last week whether we would see a return to the reflation rally or were entering a new regime dominated by mean reversion. The price action last week counts in favor of both, as we reverted to the closing highs of the prior week; I expect a more definitive answer by November options expiration. The sale of out of the money equity index puts and/or put spreads I suggested last…

Volatility Tracker: Hiccup or Hangover?

Monday, November 2, 2009

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Volatility Tracker for the week of November 1, 2009 Equity markets have been drunk on the wine of federal stimulus for most of this year. While the increased volatility in the latter half of last week could amount to a mere hiccup in the reflation rally, indicators suggest that more participants are concerned about an equity market “hangover” than at any time since the market bottom. The transition to a different market environment may have just occurred, and in the…

Volatility Tracker: Gold Hysteria

Monday, October 26, 2009

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Volatility Tracker for the week of October 26, 2009 As I’ve noted on many occasions here, the relationship between spot VIX and longer-dated VIX estimates has not “worked” as a directional indicator for at least several months. [7,8] This looks like a genuine puzzle: the premium VIX futures traders are willing to pay and/or requiring in order to sell is too steep and has been too persistent to be dismissed as a phenomenon typical of the “wall of worry” that…

Volatility Tracker: Confidence-Building Measures

Sunday, October 18, 2009

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Volatility Tracker for the week of October 19, 2009 The time to write “the fear is gone” stories will be with a VIX at twelve, not twenty-two. A story in the financial press on Friday featured a few quotes from traders claiming that a lower VIX means that equity holders aren’t as fearful as they used to be. While that observation is true, it’s also rather banal. Levels of human fear and concern are squishy, qualitative factors; every quantified implied…

Volatility Tracker: No Runaway Reflation

Tuesday, October 13, 2009

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Volatility Tracker for the week of October 12, 2009 Traders have become increasingly focused on the role that the dollar is playing in exacerbating rallies in equities, gold, and other assets, with concern in some quarters about a more precipitous dollar decline to come. At least on the implied volatility front, there’s no sign of such worries yet. EVZ, the index that tracks VIX-style implied volatility for FXE (a EUR/USD ETF) is pushing to new all-time lows. Note that sudden…

Volatility Tracker: Overpaying for Options

Monday, September 28, 2009

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Volatility Tracker for the week of September 28, 2009 The spread between the volatility realized in the S&P 500 over the last 30 calendar days and the volatility implied in S&P 500 options 30 calendar days ago is about the widest that it has been  this year, with the exception of a similar instance in early August. [5,6] That means stocks haven’t been nearly as volatile as index option prices have assumed they would be. Put another way, it has…

Volatility Tracker for September 21, 2009

Monday, September 21, 2009

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Volatility Tracker for the week of September 21, 2009 Monday morning greets us with moves lower in gold, silver, equities, and oil and what looks to be the first consecutive day of gains in the US dollar index since late August. If recent behavior continues, these moves will be reversed promptly, but many traders are increasingly watching for signs that the summer reflation rally may be nearing an end. Clearly, gains of this magnitude at this rate are only sustainable…

Volatility Tracker: Equity Options are Overpriced

Monday, September 14, 2009

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Volatility Tracker for the week of September 14, 2009 The dollar continued slouching toward Harare, and it is anybody’s guess whether the trend will reverse anytime soon. I track price and volatility changes in FXE, the USD/EUR ETF, at [2,3]. The implied volatility index for gold closed down nearly 6%, in line with the expectations expressed last week. I can’t recommend enough giving a weekly glance at the Implied Daily Move table. These are simply the point and percentage changes…

Volatility Tracker: All That Glitters is Volatile

Tuesday, September 8, 2009

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Volatility Tracker for the week of September 8, 2009 The biggest mover last week on the volatility front was gold, as the “gold VIX” (GVZ) closed 40% higher. [2,3] Recall that when equity index prices rise, implied volatility typically falls; this inverse relationship does not hold for gold and many other commodities. On the contrary, the volatility implied by option prices will often rise with commodity price increases -a state of affairs with significant implications for option traders. We are…

Volatility Tracker: Implied Correlation as a Reflation Proxy

Monday, August 31, 2009

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Volatility Tracker for the week of August 31, 2009 The CBOE Implied Correlation Index spiked to its highest level last week since the beginning of the rally that began this spring. [10] In a healthy, normally functioning market, companies that succeed will see their stock prices rise, while the stocks of failing companies will fall. In a healthy, normally functioning market, the stocks of winners and losers alike won’t rise or fall together in lock step; but the increase in…

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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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