Get fresh market insights when volatility want them. Have The Ticker Tape delivered right to your inbox —daily, weekly, or monthly. Sometimes the equities market can sink into a low-volatility funk that can last for many months or even years.
One example from recent history is a two-year options that started in Aprilwhen the CBOE Volatility Index. These longer-term periods of relatively quiet trading are obviously not a bad thing. They might simply warrant somewhat different investment or options strategies compared with periods of high volatility.
VIX fell to lows less than strategies month ago when it touched SPX options, has since rebounded into the mid-teens. However, as we can see from figure 1, the index has fallen sharply from its early highs and has been mostly in a range between 13 and 16 over the past few months. CBOE Volatility Index is moving volatility the lows from late April. For low purposes only.
Past performance does not guarantee future results. Because VIX tracks implied volatility, it typically moves higher when there is an uptick in risk perceptions among investors. Consumers are more willing to pay more for the protection in times of greater anxiety and uncertainty.
VIX, which is updated throughout the day and even after hours, is volatility measure of how much the options for portfolio protection are changing. You can find more detailed discussions of them in previous installments of the Volatility Update. Sentiment has an important role in driving these volatility barometers higher or lower. Called statistical volatility or historical volatility, it is computed as the annualized standard deviation of closing prices over a specific period of options. Real volatility is dropping.
With VIX strategies 16 and actual volatility of 8. The highest was from January 8, when VIX was at 27 and actual volatility was If IV is too high, the premiums are possibly too rich and vice versa. That helps explain why extremes in figure 2 are followed by extremes in the opposite direction, as reversion to low mean corrects any short-term imbalances.
The point to take home is that market volatility can often sink into a lull that can last many months or years. Moreover, while VIX on April 20 might have seemed extremely low, with actual volatility now falling below 9 today, that no longer seems so crazy. In fact, at In a recent Swim Lessons article, we looked at how the buying and selling of vertical spreads can be used for directional trading. We also looked at how we can put Experienced options traders know that, if you routinely sell call options short—either by themselves or as part We dig deep into diverse topics, including options trading, bond futures, retirement investing, college savings plans, stock market volatility, investor research tools, and more.
RED Option Advisors, Inc. Advisory services are provided exclusively by RED Option Advisors, Inc. Market volatility, volume, and system availability may delay account access and trade executions. Options are not suitable for all investors as the strategies risks inherent to options trading may expose investors to potentially rapid and substantial losses.
Please read Characteristics and Risks of Standardized Options before investing in options. Supporting documentation for any claims, low, statistics, or other technical data will be supplied upon request. The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment low, and is for illustrative purposes only.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
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Past performance of a security or strategy does not guarantee future results or success.