After everything that’s been published elsewhere about today’s plunge, there isn’t much I can add in the way of analysis—so I’ll just briefly summarize the technical picture. The S&P 500 Index is short-term oversold and looking primed for a bounce following this afternoon’s final-half-hour recovery,… …while intermediate-term momentum is rolling over into a new sell signal,… …and the VIX is back at the high end of its August-September range.…
Thursday, September 22, 2011
Pessimism continues to dominate world markets this morning, promising a follow-on to yesterday’s instability. I foresee three possible scenarios (from most “obvious” to least): The sell-off will continue, with volatility spiking higher; Markets will find support for a day (or two, or three) and then drop further; We’ll see a sharp rebound from oversold conditions before the end of the week. What’s important to us isn’t so much which of these plays out, but that fear and…
Tuesday, September 20, 2011
I’ve already posted some performance details on the VXH strategy, but I wanted to wait for the official report from the accountant to discuss August returns. The numbers are in, and VXH returned 167% in August. The strategy is up another 10% or so in September, and has returned more than 50% since inception. I sent the following note to clients earlier this week, and you can read it here for more details: VIX Portfolio Hedging (VXH) Program Performance Review…
Monday, August 29, 2011
Volatility is the only asset class that makes sense for hedging an equity portfolio, since it protects against the actual thing that investors are worried about. Fixed income, commodities, gold, etc. all have their neat quirks, but their value as portfolio hedges is orthogonal, at best. Investors love smooth, positive returns most of all and love sharp, jagged declines the least. Long volatility strategies like VXH produce outsized gains during those sharp, jagged periods of high volatility, making them the…
Tuesday, June 21, 2011
The Condor Options newsletter portfolio returned nearly 16% in the second quarter of this year, compared with -0.60% for the S&P 500. The newsletter is also more than six percentage points ahead of the index year to date. Finally, the newsletter portfolio reached a new all-time high in June, something that few indexes or assets can claim. I noted in my last quarterly update that I expected more periods of sideways price action in the rest of 2011, and so…
Thursday, June 16, 2011
Och-Ziff Capital Management (NYSE:OZM), the publicly-traded fund of funds, is getting some attention today from its 13F disclosure to the SEC in May. The asset manager disclosed that it bought nearly $12B in equity options in the first quarter of 2011. Some traders interpreted this as a straightforward bet on increasing volatility, but I had the following comments in a Bloomberg story this morning: Och-Ziff might be following an options strategy known as a “dispersion trade”…
Monday, May 9, 2011
The past week was every bit as challenging as we expected—and more…only it was the return of stark reality to investor sentiment rather than continued blind bullishness. Our Supplemental Trades portfolio was hit with a sell-off in energy shares steeper than any week except one in the past year. We canceled the planned adjustment to XLE Friday afternoon when the share price plunged from its opening surge back down to the prior day’s close (before recovering some late in the…
Monday, March 21, 2011
Before getting in to the gory details of our March Supplemental Trades loss, I want to illustrate just how unusually volatile IBM turned in recent weeks. The chart below (click to enlarge) shows the price of IBM over the past two-and-a-half years (blue line), overlaid with its 10-day Average True Range and the 20-day slope of that ATR. Because it incorporates intraday volatility as well as volatility of day-to-day closing-price movement, I use ATR to gauge how emotionally a stock…
Tuesday, March 1, 2011
I’m excited to announce the publication of Options and the Volatility Risk Premium, a short eBook (about 4500 words) published by FT Press. I have written about the volatility risk premium (VRP) before on this blog, and published a feature article in Expiring Monthly last year on the presence of the VRP in commodity options. The first part of the text explains the concept of the volatility risk premium and gives a rationale…
Monday, October 25, 2010
As I mentioned in this morning’s Portfolio Update, there are two reasons why our portfolio risk curve has deflated somewhat since we opened our second November position even though it should be benefiting from time-decay. Well, it has benefited from time-decay—just not enough to offset the effects of changing implied volatility. A big difference between iron condors and calendar spreads is that we’re selling the differential in time decay between two expirations rather than two strikes at the…
Jared Woodard is a registered commodity trading advisor who specializes in trading volatility as an asset class. With over a decade of experience trading options, futures ... Read More
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Thursday, September 22, 2011
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