Tag Archive | "djia"

Rising correlation and stock volatility

Monday, November 19, 2012

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In 2011 and early 2012, one of the big themes was the elevated correlation among individual stocks. In the “risk on, risk off” environment, investor appetites for stocks were indifferent to the fundamentals of particular companies: trades were all about the macroeconomic risks. You can get a sense for the major swings in stock correlation by looking at the three month correlation among the Dow Jones Industrial Average components since 2008 – see the bottom panel in fig. 1. One…

When Equity and Volatility Indexes Agree

Sunday, August 2, 2009

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Although the major equity indexes are highly correlated, they tend to diverge in meaningful ways on a day-to-day basis. The same is true for the implied volatility indexes that track equities. It’s also common for equities and implied volatility to move inversely on a daily basis – the expectation is that, most of the time, if the S&P 500 closes up, the VIX is likely to close down. It’s very uncommon for both the equity indexes to all close higher…

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,…

February Monthly Review

Tuesday, March 3, 2009

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February 2009 was one of the most profitable months ever for our newsletter.  We were able to enter several positions at optimal moments in the cycle, and a cooperative market allowed us to let some trades expire worthless. Performance Comparison S&P 500: -9.42% Dow Jones Industrials: -11.06% Russell 2000: -11.90% S&P 500 Covered Call Fund: -11.89% Condor Options VAMI: 3.10% Note: the period measured is from expiration to expiration. Our updated Performance page compares the value-added…

December Monthly Review

Monday, January 5, 2009

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The most interesting feature of December 2008 was the rate at which volatility – both historical and implied – declined.  While we could view this decline as simply the counterpart to the volatility explosion we saw in the fall, the changes were still very interesting to watch.  A rapidly falling volatility environment was ideal for the December expiration positions we published, though it also presented some challenges for the iron condor strategy we follow in our newsletter: specifically, we…

Keeping Our Heads Down

Tuesday, September 30, 2008

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While we’ve been communicating more actively than usual with subscribers, things have been somewhat quieter here on the free part of the site.  The reason?  We don’t expect historical and statistical studies to be nearly as helpful in a market environment like this one.  And since we don’t have any unique insight into the likelihood of various political and economic events coming to pass, we figure your RSS reader or pony express boy or whatever is already loaded with…

Bull Markets Don’t Rally 300 Points

Wednesday, August 6, 2008

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Wiser heads than ours are still thinking hard about the unrelenting credit troubles, the generally absurd situations of FNM and FRE, and the possibility that this time, socialism for the rich (that broad set of taxpayer-funded free love, free money policies available to large companies and major investors, but not to ordinary people) might not pull us through.  If our bearish data points from yesterday weren’t enough, here are some more: There was a big divergence in…

Equities Can’t Get a CLUe

Friday, July 25, 2008

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Ok, stupid pun.  But the August crude futures contract (CLU8) is down another $2 today (about 1.6%), and the market indexes don’t seem to care that much.  While the NDX(QQQQ) and RUT(IWM) are up about 1%, SPX(SPY) and DJIA(DIA) are only modestly higher.  A small rally this morning faded pretty quickly, and we wouldn’t be surprised to make a new low for the week into the close. Among the key sectors we follow, broker/dealers, banks, and biotech are bringing up…

Bullish Roller Coaster

Tuesday, July 1, 2008

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The market took us for a real ride today.  We sent a note out to members well before the open when the Dow futures were down over 100 points on rumors of a pending Israeli attack on Iran.  While we didn’t get the high volume capitulation selloff we were hoping for today, this action is good enough.  Traders stepped in and bought the gap down right away, and we moved into positive territory by 11:00 (the better-than-expected ISM report certainly…

There, That’s Better

Friday, June 6, 2008

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This morning (premarket) we sent a note to subscribers laying out some hedging strategies, should they be needed in the event of a continued rally. Happily, not only was that note totally unnecessary, but today’s fantastic drop has us ideally positioned going into next week. As several members mentioned today in correspondence, the advantages of market-neutral trading strategies aren’t limited to markets that blandly drift sideways; being neutral is also a great way to avoid the day-to-day whiplash of the…

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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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