Not as much milk from the cow.

Discussion in 'Options' started by noob_trad3r, Jan 12, 2012.

  1. VIX dropping premiums on SPY dropping. Do you think it will go back up soon?

    I want to milk the fear cow further but it seems that the cow is not willing right now.
     
  2. You might discover it's actually a male goat...
     
  3. Just the image I needed @lunch....
     
  4. Sometimes the cow gives you premium milk

    Sometimes the cow just gives you droppings
     
  5. Crispy

    Crispy

    Cows fine. Maybe the farmer needs to see another few milking seasons? :D

    [​IMG]
     
  6. gmst

    gmst

    Crispy, Thanks a lot for the chart. It tells me that I have 1.5-2.5 years more when money can be made easily. Which means I need to graduate pretty quickly to big league managing a large account - for if I take 2-3 yrs to have a bigger account, chances are I will find making money in low vix environment pretty hard for next 10 yrs.

    Thanks again! This chart is personally important to me.
     
  7. sle

    sle

    I would take any predictions based on 4 periods with a large brick of salt.

    If you look at the long-term history history for Dow Jones IA, median realized volatility (1m rolling frame) is approximately 14%. There have been, however, lengthy periods where realized came in half of the median and where it came in multiple times higher. The in the post-WWII period, for example, the market has realized under 10 vols for over 20 years. Similarly, the market realized significantly higher volatility in the pre-war period, with little respite for over 20 years.

    In any case, the experience shows that trying to predict the speed of mean reversion for volatility is super-hard (unless you are an delusional academic). Trying to build some sort of model for the "periodic volatility cycle" is simply impossible.
     
  8. gmst

    gmst

    Agreed - drawing a result from 4 period historical analysis is only for naive. Main aim for my writing was motivational - to give me urgency to work on better systems faster, and to make money and keep it in my account and grow it - fearing that vol might go away in 2 yrs :)

    Didn't know about the realized vol of DJIA longer term, so thanks for that. In my limited experience, I have found my pnl to be a function of volatility in the market and many strategies work better in volatile - larger range markets because your R:R gets better. One practical solution from a equity trader's perspective to deal with low vol environment would be to trade some other country's equity markets - like some European country or HK/KOSPI for example which have higher volatility.

    But for a primarily fx trader (myself) if fx vol dies down over time, things will become harder.
     
  9. Crispy

    Crispy

    The pic wasnt a prediction, sorry if it was taken that way. And clearly unscientific. It was half joke, half advice stating there is always opportunity somewhere whether your outlook is high or low volty.

    I have to agree about timing volatility cycles and mean reversion of it. Its tough, but not impossible. My model has the 90 day period nailed. Took me a long time. But I trade SPX based strictly off of it. And I am not an academic.
     
  10. Looks like Milk will be flowing soon from the cows! The media and hedge funds etc.. are trotting out the european downgrade imminent.

    Waiting for the big jump.
     
    #10     Jan 13, 2012