Tag Archive | "historical volatility"

Trading the Volatility Spike in YUM! Brands

Monday, December 3, 2012

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YUM! Brands has been regarded for some time as a play on discretionary spending in China – as part of the shift from exports to domestic consumption. Given that framing, YUM investors are pretty sensitive to changes in data coming out of China. After the market close on Thursday, YUM guided lower on Q4 sales in China. Half of the operating profit in the third quarter came from China, so a forecast for a 4% drop in same-restaurant sales…

Is the Market Getting Too Quiet?

Tuesday, January 31, 2012

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The market has not been this docile in more than eight months. The short-term volatility of the S&P 500 dipped below 10% in mid-January, and the market has kept getting quieter as stocks churn flat-to-higher. The temptation when stocks get this quiet and options become this cheap is to assume that volatility will soon revert higher. But before speculating on rockier markets up ahead, it is worth looking back at how similar markets have fared historically. Fig. 1. SPX…

S&P 500 Historical Volatility Drifts Lower

Wednesday, February 11, 2009

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The chart above plots the historical volatility of the closing prices of the S&P 500 (SPX) over the past 10, 30, 60, and 90 days.  The 10 day line probably corresponds most closely to what most traders feel about how the market has acted.  Notice that the 90 day reading has just drifted at around 60% since early December – it will take some time for the extreme moves from last year to be “worked off” as the rolling…

A Turn in Historical Volatility

Wednesday, November 26, 2008

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The following chart displays the 10, 30, 60, and 90 day historical volatility of SPX since August 2008 (click to embiggen). The slowest-moving reading above, the 90 day, has just ticked down from the plateau formed earlier this week around 58%, and the 60 day historical volatility has leveled off as well.  That’s actually not very significant in and of itself: these are moving windows and at a certain point even the longer-dated lookbacks will only include days since…

Choppy Waters Ahead

Tuesday, October 14, 2008

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We mentioned yesterday evening in a note to subscribers that in the past, high volatility environments have been the best times to sell option spreads.  Rising volatility alone isn’t a sufficient signal – as anyone who was short volatility during the past few weeks can attest.  But once high-flying implied volatility readings turn the corner or flatten out, that’s often a good time to sell premium at those elevated levels. From a directional perspective, there are signs that, two…

Historical and Implied Volatility Crossovers

Tuesday, October 7, 2008

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Because implied volatility is forward-looking, it tends to lead backward-looking historical (or realized) volatility readings.  This relationship stands to reason: options prices can and do respond in real time to new information, while any historical measurement – even a short-term one – will by definition lag as day-to-day changes are gradually incorporated into the period under review. The chart above (click to enlarge) displays the 30 day historical volatility (HV; the dotted line) and the nearer-months average implied volatility…

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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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