ACD guys, how are doing in general in this environment of low volatility, especially this August? Did shrunk volatility affect your profits or methodology?
There were was some good action this month in Bonds, Oil and Gold. We had a solid monthly A up in crude that paid off throughout the entire month and Bonds bounced hard off that QTR A down. Gold finally broke out. The number line was the early tell as it showed some solid strength for the first time in a long time. ES was god awful. Ranges got very tight and the number lines never really developed. The Euro had some decent strength as well but more of a slow grind up. I didn't trade AAPL but man that really exploded.
For me, all month I traded high volatility strangles on number lines. AAPL, GOOG and AMZN. Good mOnth
Apologies, must correct something here. Not the numbers lines, but the daily A levels that held the 15 minute opening range for 5 minutes. Usually out the next 1-3 days. Low risk/reward, but it paid this month.
Hey John, Any commentary in the discrepancy in the Implied vol and Historical vol in the ATM SPX options. I haven't seen this wide of a divergence in this type of enviroment...ever.
Go back and look at the ranges from 7/20 to 8/3 in ES. You will notice we had huge ranges on those days. Those data points are dropping off the 20 day roll. Very similar to a 20 day rolling number line. As those wide range days drop off and get replaced with the narrow range August days, it will drag the stat vol down. All the 20 day hist vol is, is the last 20 days of vol annualized. Augen talks about this a lot in his books about how the historical, or stat vol, can be very deceiving. The implied vol is going into a historically high period, the sept to oct time frame. So forward vol is getting bid up as it should. Based on the data points we have, you will continue to see the hist vol drop as we drop off more higher range days. Of course if we get some really big days this week it will help offset the drop offs.
You can play around with the hist vol a bit and use a number of different time periods. Something shorter so its more sensitive to changes. Even on a shorter frequency there still looks to be a little discrepancy. Sept to October does look to be historically bullish for vol so that may explain some of it. Aight, thanks.
Yeah any data you use recently will show you the same thing as there has been no range the last month in ES. All stat vol can do is show you exactly what's in that sub set of data. Where as implied volatility is forward looking and is priced off the market's expectation of future vol. For example, going into earnings for a stock you will see the same thing. You will see the ranges tighten on a stock and produce low stat vol while the implieds get driven higher by the expectation of a large "jump" on the report. If you go back the last 3 or 4 summers, we actually had quite a bit of movement over the summer so the August/Sept/Oct seasonality pattern was not as obvious. However, last year at the end of December into Jan we saw a similar pattern. Where implied vols were being bid up into a seasonally slow period around Christmas. The spreads got very wide. This is usually the case around the year end holidays but last year it was much more pronounced.
I have ES monthly A about here 1428.47...prob hard to consider it confirm'd tho esp with NFP tomoro...
Same here. If it closes above here tomorrow we'll have a confirmation. That would be very impressive.