This article was originally published in The Option Strategist Newsletter Volume 21, No. 10 on June 1, 2012.
These days, there are more and more volatility indices and futures than ever. One can observe the same sorts of things about them that we do with $VIX futures – in particular, the futures premium and the term structure. We thought it would be an interesting exercise to see how these other markets’ futures constructs compare to that of $VIX. The $VIX construct, for a long time (see chart, page 12) has been that of large futures premiums and a steep upward slope to the term structure. Historically, that sort of construct has been associated with bullish markets, although it has persisted throughout the current market decline as well. How do these other markets line up in comparison to the $VIX futures construct?
This article was originally published in The Option Strategist Newsletter Volume 12, No. 8 on April 24, 2003.
The concept of “delta neutral” is an intriguing one – especially to traders who have had a hard time predicting the market or to those who don’t believe the market can be predicted (random walkers). The concept is even sometimes “sold” to novice investors as a sort of “can’t-lose” trading method, even though that isn’t true at all. While the idea of having a position that can make money without predicting the direction of the underlying stock seems attractive, in practice the strategy is difficult, if not impossible, to apply – at least in terms of keeping a position delta neutral.
This article was originally published in The Option Strategist Newsletter Volume 11, No. 05 on March 14, 2002.
No, this isn’t an expose, despite the article’s title. Rather, it is an attempt to set the record straight about how volatility levels can be used as a predictive market tool. So much has been written and said about volatility in the last few weeks – in main-stream publications and on national television outlets. Much of it is erroneous. These errors are not really attempts to mislead the public, but are rather outgrowths of conventional misconceptions. The misconceptions may have arisen out of an over-reliance on near-term trends, while ignoring or being ignorant of what a longer-term volatility picture actually means.
This article was originally published in The Option Strategist Newsletter Volume 19, No. 18 on October 1, 2010.
Most of the time, we look at index options in order to make general observations about volatility. These observations, which evolve into opinions, often involve $VIX, $VIX futures, or $VIX options, all of which are based on the $SPX options. This is a reasonable approach, of course, since $SPX options are heavily traded, as are the $VIX derivatives, and therefore they reflect the greed, fear, and anticipations of literally millions of traders.
This article was originally published in The Option Strategist Newsletter Volume 14, No. 12 on June 22, 2005.
Before you declare me insane for even mentioning the words “volatility” and “increase” in the same sentence, let me point out that I am not saying that volatility will increase immediately. However, it will certainly increase sometime and that could happen as soon as the second half of this year. Remember, July 1st is the traditional low point for $VIX for the year. So, after that, $VIX generally increases – albeit in fits and starts – until October.
This article was originally published in The Option Strategist Newsletter Volume 18, No. 18 on September 24, 2009.
This is a question that has always intrigued me. We all see situations, for example, where stocks make a large gap move on earnings. Is it justified? Does the stock continue on in the same direction a week, month, or quarter later? Or does the knee-jerk reaction to news just provide a place for a reversal? These are all good questions, and so we have been working on a study to answer them.
This article was originally published in The Option Strategist Newsletter Volume 6, No. 2 on January 22, 1997.
During expiration week, we often talk about the importance of monitoring option activity in OEX because it can have an influence on the overall market. This is especially important for stock traders and stock index futures traders. Whether you're short-term oriented or merely wanting to know what's going on, you should understand the ramifications of an early exercise of OEX options.
This article was originally published in The Option Strategist Newsletter Volume 4, No. 12 on June 21, 1995.
With the market being so high, many individual investors and institutional money managers as well are wondering what to do with these profits. Completely exiting the market is not a viable alternative for many, and is prohibited by charter for some institutions. However, there is a way in which one can reduce his downside exposure while still retaining upside profit potential — he can sell his stock and replace it with LEAPS call options.
This article was originally published in The Option Strategist Newsletter Volume 14, No. 5 on March 10, 2005.
One of the recurring themes in option-oriented media articles is that the $VIX Index is “too low.” Since many observers – media and traders alike – view $VIX as solely a contrarian indicator, this is a danger sign for the market. These observers figure that such a low $VIX implies that traders are, in general, too complacent, and thus the market is ripe for a beating. There are a lot of errors in these observations and opinions, and so we’d like to set the record straight. We have written articles about similar topics in the past, but with $VIX hovering near nineyear lows for such a long time (at least three months now), it is perhaps more timely now than ever.
This article was originally published in The Option Strategist Newsletter Volume 18, No. 06 on March 26, 2009.
We have written about this topic many times in the past, but the $VIX futures’ ability to predict broad market movements has been called into question recently. For example, at the recent CBOE Risk Management Conference in Laguna Niguel, California, there was some discussion that the $VIX derivative products had lost their ability to “predict” movements in $SPX. That is not entirely true. What has spurred this sort of thinking is the fact that $VIX did not spike up to a peak and snap back down again when $SPX most recently declined sharply into what is so far a “V” bottom at 670. Also, discrepancies in the term structure, which at one time resulted in immediate movements in $SPX, have taken much longer to materialize in recent months than they used to.
