There are really only four places where I can consistently brainstorm at the top of my game (a free VIX factoid for anyone who can guess all four of them) and one of them is on long airplane rides. Since swapping the nomadic consulting lifestyle for that of the geographically constricted stay-at-home trader/investor, I sometimes find myself missing those six hour coast-to-coast flights where I could point my brainwaves in a particular direction and free associate without fear of interruption. Yesterday I had one of those rare opportunities for brainstorming at 38,000 feet and from that session comes a number of ideas that I will likely be talking about in this space in the next two or three months.
Among the subjects that I will be taking a closer look at, in no particular order:
- Looking at volatility across the full range of asset classes (not just US equities)
- Long-term volatility forecasting
- Diving deeper on the correlation between the SPX and the VIX (short-term and long-term)
- Non-VIX volatility measures for the SPX/SPY (ATR, Bollinger Band width, etc.)
- VIX implied volatility vs. historical volatility
- With hurricane season upon us, it is time to look at hurricane-related volatility in drillers, refiners and oil services companies. What are the investment opportunities? How do they mirror the VIX?
- Revisiting the idea of a VIXdex
- How to parse the universe of volatility events -- and maybe flesh out my ideas on a "taxonomy of fear"
- Is there a fat tails inflection point? Is there an options tipping point where mean reversion battles new money?
- Fear vs. volatility: Is it meaningful to talk about these subjects separately?
- Develop a Long Term Capital Management timeline superimposed on the VIX
If readers have any particular areas of interest they would like to see me elaborate on, just note them in the “Comments” section below and I’m sure that some of them will get thrown into my R&D queue. Also, if readers have pointers to some interesting work already done in some of my target areas of interest, I would love to hear about these as well.
"Is there a fat tails inflection point? Is there an options tipping point where mean reversion battles new money?"
ReplyDeleteThis is a very interesting proposition. You may want to look at the latest ideas in Complexity to tackle this one. It might be helpful to explore the concept of a market "critical mass".
Certainly fear versus volatility. Part of the problem I have with using the VIX is that it can be predicted with great accuracy using only price action of the underlying; what one really wants to read is sentiment i.e. fear, or the deconstructed difference between what is predicted using price and what is additive from the VIX.
ReplyDeleteSince you're the VIX Bill, and I prefer being just the Price and Volume Bill, I think you're just the guy for the job ...
Bill. I'm looking forward to your ideas on the firts five points. Could be useful in terms of "endogenous" liquidity indicators.
ReplyDeleteThanks for the comments, everyone.
ReplyDeleteBill, I was hoping you would do the VIX fear vs. historical volatility disaggregation for me... :)
F and Agustin, I have no preconceived notions of what sort of ideas will fall out of this agenda, but sometimes it helps just to focus your thinking back on some of the more interesting questions, rather than go the freeform route.
Good trading and investing,
-Bill
I know you were hoping I would disaggregate fear vs. historical volatility in the VIX, and I believe that it would be a helpful trading tool, but I have chosen to focus on simpler methodologies. If Buster Douglas could beat Mike Tyson with a good jab, why should I be practicing my "jump spinning hook kick" in order to beat the markets?
ReplyDeleteSince I believe it to be ultimately of some use, I don't have the motivation to do a post to disprove it, as I have with some trading nonsense.
Also, I would feel a little "dirty" writing positively about a method that I had no intention of personally using.
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ReplyDelete