Friday, July 20, 2007

Volatility Aces Bloggers

A month ago Adam Warner of the Daily Options Report and I had the bright idea to debate where volatility would trade during this past extended options cycle.

Adam made a strong case for lots of dead time during the options cycle leading to lower volatility, perhaps as low as single digits. I took the easy way out and predicted that volatility was most likely to remain in the 12.50 – 15.00 range that it looked like it was settling in to at the time.

Well…if this were tennis, we would be talking something like 6-1, 6-0, 6-0, with volatility taking the two of us out in straight sets and sending Bud Collins (not pictured) officially into retirement. As the VIX chart below shows, volatility spent almost the entire options cycle in the 15.00 – 19.00 range, with the 15.00 resistance that I was counting on a month ago now looking like support. And this is the bigger story.

Nobody should be surprised that we whiffed on our volatility forecasts, as long-term volatility forecasting is extremely difficult. With an additional month of hindsight, however, 15.00 now looks suspiciously like a floor in this all-important volatility measure. If this turns out to be the case, then I can safely say we are entering a new era of increasing volatility. In fact, I think it is just about time to update the long-term VIX chart I offered up on my first post on this blog some 6 ½ months ago by adding a fifth macro period. Ironically, as it turns out, this new period of increasing volatility neatly coincides with the life of this blog. You don’t think…? Nah.


Anonymous said...

The trend in volatility has clearly been up since half way through the 1st quarter. I don't see the point in trying to fade this trend.

Anonymous said...

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