Where's the volatility?

Discussion in 'Index Futures' started by itr, Jan 12, 2006.

  1. itr


    Where's the volatility? This is the 2nd week of January but it feels more like August or December. Small ranges. Slow intraday price action. Tiny intraday swings. Seems like after the big afternoon rally on 1/3, we've been mired in this crap.
  2. 3 point ES range peak-to-peak and 270k volume at 11:30ET . . . seems like they're taking a 5-day weekend.
  3. I fear very low vola for all financials this year -- better to start trading commodities intradays -- like Brent on IPE -- there everything is better i think
  4. itr


    Why do you think there will be very low vola for all financials this year? Just curious.
  5. Really? There was quite a bit of activity in ES yesterday (1/11) in the run up to 1300 (which I believe was driven by index arb activity), similar ranges in NQ and YM. Today is decent. But I am seeing that fewer of the retail flow, the flow for rest of the week before the holiday weekend will be automated and professionals. However, my system is purely automated, so I barely actively watch the market, so I may have missed some moves.
  6. StreamlineTrade

    StreamlineTrade Guest

    Maybe we are at a top. Volatility is always lower at tops they say.

    There isn't much news to drive the markets at the moment, especially as oil is off the burner.

    Trade the rotations is my only advise. Doing this 3 times a day can make up for 1 good thrust/trend.


    (Besides, those moves you all love tend to come after tight ranges - take a long lunch break and trade the inevitable move this afternoon)

  7. I think the reason for lower vola in the next 2 years is the huge amount of capital invested in managed futures/hedge funds that use trend following approaches. They have so much money now that it is almost impossible that they make any further big returns. And the diminishing retursn you can see already the last 2 years as vola is falling. What happens now is that everybody does the same thing at the same time. Most of those funds jump on a trend/outbreak and then there are no additional traders/funds that push those trends any further which again leads to the reversal. That brings vola down. Most of these Funds concentrate their activities on Financials because only they can give the liquidity to manage so much money. These managed futures fund will have to loose lots of money or have lots of withdrawals to create higher vola again. And the losses/withdrawals can only happen in low vola markets.

    If you have option sellers that have to adjust deltas when they loose - these are the counterparts. If we had many of those (or more than managed futures funds with trend follwoing methods) then that would create vola again. However these days the option premium that is sold is structured in structured Derivatives for the public and they dont adjust their deltes when things go wrong. However the premium buyers are market professionals that sit on their premium and need to sell when markets go higher and need to buy when markets go lower to earn back the theta. Thus bringing vola down even more.

    So i think that hedge funds/managed futures with trend following methods will loose more in next 2 years until they had suffient withdrawals or losses that will lead to higher vola again. At the moment these hedge funds/managed futures cause stability to financial markets instead of instability as many argue. However when there is big news or a huge fundamental shift in economics then trends will start with all those funds jumping on. And then these funds are the bad guys again causing the whole volatility (which is considered a bad thing for most of the public). Then the public will blame them again for causing it and their easily forgot the role of providing liquidity and stability that they provided before. The price of providing liquidity to the market will then be paid later in the big moves (maybe crashs)