In equity markets, a selloff doesn’t really count until it gets the term structure up. For instance, here’s the ratio of SPY 3 month implied volatility to one year implied volatility since 2012: The only two occasions when we got close to backwardation here were in May 2012 and the end of December 2012 (fiscal cliff). In 2013, the mean level has been about 0.83, which just means that 3 month SPY options were typically about 83% as expensive,…
Tue, Jun 11, 2013
In this talk, Mark Blyth (Brown) works through some of the material in his newest book, and the whole thing is really enjoyable. He’s casual and funny and manages to cover some great topics, including some history of political economy, why the idea of expansionary austerity conflicts with the evidence, and how policy relates to current events in Japan, Australia, and Brazil. If for some reason that sounds dry, consider this slide: As he mentions in the lecture,…
Tue, May 28, 2013
An article published in Der Spiegel on Monday is causing quite a stir for its suggestion of a policy about-face by Germany. Angela Merkel and Wolfgang Schäuble have been viewed since the banking crisis began as inflexible and uninformed for their pursuit of fiscal austerity in the face of a balance-sheet recession. Now, it looks like domestic political heat may be causing the German fiscal ice to thaw. To come to grips with the problem, Merkel and Schäuble…
Tue, May 14, 2013
A full calendar around graduation means I haven’t had time to update the blog with the usual, but in lieu of research I thought I’d do a small dump here of some open browser tabs, in case you find some of these useful, too: Nemo’s Bond Crash Course – One of my resolutions for 2013 was to understand fixed income better. His recent bitcoin explainer reminded me of this bond intro. Also: @groditi, David Schawel Goldman: AUD/USD…
Thu, May 9, 2013
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 mark on television history. Better known as Bobcat Goldthwait, he chose for some strange reason to set fire to the interview chair during a guest appearance on the Tonight Show. This incident lasted only 30 seconds or so as Jay Leno used his beverage to douse the flames. I think what Bobcat…
Wed, May 8, 2013
The Condor Options newsletter portfolio returned 5.1% in the first quarter of 2013. The strategy outperformed the CBOE Volatility Arbitrage Index (VTY) and modestly lagged the S&P 500 total return over the same period. The strategy VAMI made a new all-time high in the first quarter, and booked an additional 3.9% gain in April. The purpose of the strategy is to profit from the volatility risk premia that are priced into options. While the volatility risk premium is a consistently observable, ongoing…
Wed, May 1, 2013
In response to my earlier post on why options markets are being overly sensitive, Eli Mintz offered an interesting alternative explanation of the data: @condoroptions My interpretation is more benign. I think that the market is just pricing lower average volatility long term. — Eli Mintz (@VixCentral) April 30, 2013 Here’s why this is a plausible explanation of those recent flattening periods in the VX slope. If the market is expecting lower volatility over the long term,…
Tue, Apr 30, 2013
One of the most important market signals over the last five years has been the slope of the VIX futures term structure. In quiet, bullish markets, short term option premiums are significantly lower than longer-dated implied volatility; when risk scenarios roil markets, the term structure flattens and then steepens in the other direction. Changes in that dynamic have more explanatory power than many of the technical signals and chart patterns favored by directional traders. Since December 2012, however, changes in 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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Monday, June 10, 2013