So, I've been looking into a few things related to vol markets. (Michael Kramer - Mott Capital Management) This guy is talking about the long/short vol trade MAG7/SPX (either via straddles or cross asset put/call). It's being put on quarterly, and it got put on right before tech earnings (okay kinda makes sense). He says "it will come off next week" and then suggests bearish action in the names as a result of that. The implied correlation jumps as the trade is put on, and drops off as the vols 'de-correlate'. I didn't realize how important some of this sh1t is. The thing I'm asking about is the related stuff like SPOTVOL/VIX, and spot-vol beta. As for SPOTVOL, What are the differences (however insignificant) between VIX, VIX futures, model volatility, and SPOTVOL. How does it compare to raw model vol calculations/correlates when used for index-vol correlation trading? Got any clever suggestions for index-vol correlation informed trading? Any other Cboe indexes I should be watching?
Understanding the distinctions between VIX, VIX futures, model volatility, and SPOTVOL is crucial for traders and investors navigating volatility markets. Here's a comprehensive breakdown: VIX (CBOE Volatility Index) Definition: The VIX measures the market's expectation of 30-day forward-looking volatility, derived from S&P 500 index options.Kellogg Insight+6Investopedia+6Morningstar+6 Characteristics: Reflects implied volatility, not actual or realized volatility. Often termed the "fear index" due to its tendency to spike during market downturns. Not directly investable; serves as a benchmark for volatility expectations.MorningstarInvestopedia+1Investopedia+1 VIX Futures Definition: Futures contracts based on the expected future values of the VIX index. Characteristics: Allow traders to speculate on or hedge against future volatility. Prices can differ from the spot VIX due to factors like time to expiration and market sentiment. Subject to contango or backwardation, affecting roll yields and strategy performance.ScienceDirectKellogg Insight+2Alaric Securities+2Investopedia+2 Model Volatility Definition: Volatility estimates derived from mathematical models, such as GARCH or stochastic volatility models.European Central Bank Characteristics: Based on historical price data and statistical assumptions. Used for risk management, derivative pricing, and forecasting. May differ from implied volatility measures like the VIX, especially during market stress.Financial Times+2Investopedia+2YouTube+2 SPOTVOL Definition: An index measuring the immediate, or "spot," volatility of the S&P 500, focusing on current market fluctuations.Kellogg Insight Characteristics: Designed to capture day-to-day volatility, distinct from long-term expectations. Provides a more granular view of current market conditions compared to the VIX. Useful for traders interested in short-term volatility dynamics. Comparison & Correlation in Index-Volatility Trading VIX vs. VIX Futures: VIX reflects current market expectations; futures represent anticipated future volatility. Futures prices can diverge from the VIX due to market factors, leading to basis risk.Morningstar+2Cboe+2Investopedia+2Topstep Model Volatility vs. Implied Measures: Model volatility relies on historical data; implied measures like the VIX incorporate market sentiment. Discrepancies between the two can signal trading opportunities or mispricings. SPOTVOL's Role: Offers a real-time snapshot of market volatility, complementing the forward-looking VIX. Can be instrumental in strategies focusing on immediate market movements. VIA CHAT GPT
If there is a big trade in mag7/spx (to move SPX it would have to be pretty big right?), I've not heard about it. Usually, dispersion people trade top50 since that actually mostly replicates the index. Dispersion people have been quite active given that correlation is back at attractive levels, at least relative to the recent past You can see implied correlation (more applicable to var swap dispersion, based on how the index is constructed) using COR1M, COR3M etc indices
Here is what i posted last summer year ago (Dispersion trade "idea" thread): "Instead of opening position every month, make only one trade per qtr on monthly expiration with a lot of reporting, like AUG is now"
NEVER listen to that MOTT guy he is always always always WRONG you can check his youtube channel. More of a bear than Harry Dent + Peter Schiff did I say always?
I think you're over analyzing trading linearly, too left brained. Trading is not a science or math problem. Trading is a gentle storm comprised of data, emotions, deviations, ranges, points, variables and some art in a timeframe, picture frame box. Realize this wisdom, and you'll be be one stepping stone closer to being in sync with market riches Money of Real