Volatility forecasting is a subject that I spend a lot of time with behind the scenes, yet rarely post about on the blog. Part of the reason for my reticence to post on the subject is that my own efforts to develop a volatility forecasting model have demonstrated that whatever proficiency I am developing seems to be limited to at most a 2-3 week forecasting period.
That being said, whenever I see Condor Options write about a subject that I have an interest in (which is almost every time something appears on their site), I take notice. Today my avian friends are tackling Forecasting S&P 500 Volatility, using a variety of approaches, including SPX implied volatility, VIX futures and a trio of GARCH(1,1) forecasting models. The consensus? None, really. The SPX IV data anticipates the most volatile future, while the GARCH(1,1) models see volatility dropping off more rapidly. Check out the full article for the details.
My forecast? Partly cloudy, with a chance of gradually diminishing volatility over the course of the next 2-3 weeks.
What happened to the $VXV at about 3:30, suddenly dropped off the table? I figured it was bearish that it was up all day during the rally, but now I am confused.
ReplyDeleteAt about 3:20 the VXV dropped a little over 5%. Since that time, however, it has continued to trend lower and is now about 7.5% below where it stood a half hour ago.
ReplyDeleteI have been too busy trading to watch the SPX options flow, but I will check after hours.
Cheers,
-Bill
It bumped right back up by end of day. Vix also climbed by end of day. I don't trust this rally at all.
ReplyDeletei was trading vix future spreads and the last half hour was nuts (and luckily very profitable).some inbalances and the spot vix action was amazing.
ReplyDeleteDefinitely some interesting developments, including the fact that for two days in a row VXX dropped more in percentage terms than the VIX did -- which I'm sure will turn out to be rare when there are more data.
ReplyDeleteAs for trusting the rally, you and many others, it seems. I wouldn't be surprised to see a big sell off when Geithner announces the new plan on Monday at noon ET.
Have a good weekend,
-Bill
Question? What do they mean by Garch?
ReplyDeleteRegarding GARCH, you should probably follow the link or Google the term, but it is a an approach that uses past variance to model future variances.
ReplyDelete