Volatility Views

Volatility Views 90: Sell or Sell Not, There is no Buy.

Volatility Review:

The dollar hit a historic level with the Yen last week, and this has had an effect on the currencies Vol. The inversion of realized volatility, where it's higher than VIX, continues -- a rather unusual occurrence.

Volatility Viewpoints:

Dennis Chen. He is the co-author, along with Vol Views's own Mark Sebastian, of The Options Trader's Hedge Fund.

Listener Mail:

Comment from Hawkeye: In honor of May the 4th, "Buy not, sell or sell not, there is no buy." - from Don "Yoda" Schlesinger. Thanks to all the volatility masters for such a great podcast!

Question from Mr. Todd: I found Mark L's comment about VXX being the #3 exchange traded product quite surprising. You guys have slammed that product frequently on this program. Why do you think it has succeeded among the entire universe of VIX ETPs? Thanks for the greats shows - when Mark "The Voice of Options" speaks I listen!

The Crystal Ball:

This curious situation with VIX really throws a wrench into the machine -- not sure where we go from here.

Volatility Views 89: Moving in Lockstep

Volatility Review: Market up 1% after some surprise news from the non-farms report -- better than expected. We had a unique week where the market was up and VIX was up as well, for 4 days in a row!

Listener Mail: Mark and Don take your questions.

• Comment by AsymmetricRisk on the Value of Gamma episode: Best Vol Views ever, by far, full of actionable insight. A whole new level for Vol Views. Keep up the good work.

• Question from Hawkeye: I just picked up Mark Sebastian's book The Option Trader's Hedge Fund. I am looking at the example where he uses a double diagonal, then "weights the vega." I understand why he wants to weight them, but I don't understand where he got the actual weight values he used from. Can anyone help? Thanks.
• Question from Tom B, Houston, TX: Hey Vol Viewers - My question is for Don and Bob from the Volatility Exchange. With the recent crash at the CBOE, are you guys at VolX at all concerned about putting all of your eggs in one basket when it comes to listing exclusively on one exchange? Would it be better for RealVol futures to be listed on all relevant exchanges? Thank you for this program. I look forward to it every week even though most of it goes right over my head. Mark L has the best voice in options, Mark S is a zany character and Don can recite volatility calculation like nobody's business. Keep it up!
• Question from Tim L, Long Beach, CA: Does anyone offer the equivalent of FLEX options for volatility? If so, would you recommend them?
• Question from Athelas: What did Vix traders do during the CBOE crash? SPX has many outlets but there aren't any for VIX that I am aware of.
• Question from Tiny Tim: Where do the Vol Viewers stand on Vol before earnings? If you're long Vol, do you get out before the announcement? If you're short Vol, do you get out after the announcement?

The Crystal Ball: Implied Volatility has possibly hit its bottom. These 1% moves a day could continue.

Volatility Views 88: Reestablishing the Norm Volatility Review: Vol has spiked in the last week, going nearly as high as during the Italian elections. CBOE computers go down. How does the inability to trade VIX affect the overall markets? Listener Mail: Mark and Don will take your questions now.

• Question from Phil Z. - Mark, love the show! Could you explain what you, Don, and Mark S. mean when you say VIX has "roll risk"?
• Question from Tom S. - Do you agree with the theory of your guest that near-term S&P OTM puts are the most resilient to time decay?

The Crystal Ball: VIX should stay high for a while, but will not go above 14%.

Volatility Views 87: It All Comes Down to Timing Volatility Review: The VIX shot up at the beginning of the week, but was selling off by the end of the week. There was a broad vol story happening this week, particularly in the commodities with gold vol spiking 500% over two weeks. Volatility Viewpoint: Bob Krause discusses the RealVol Index, available at VolX, which features nine daily indexes. Bob also talks about how a real-time value can be calculated from a daily value. Listener Mail: Tell us what you want to know.

• Question from Blake M, Troy, NY: If I trade bullish risk reversals, does the volatility premium give me an inherent advantage over collar/bearish risk reversal trades?
• Question from Mitten, Toronto, ON: When does VolX plan to launch a RealVol contract on commodities? I think a metals contract would be very popular and profitable for the exchange.
• Question from Mike P: Mark, are you aware of any research, or can you bring on any guest to discuss to the performance of at-the-money straddles during earnings cycles? It can be either from the short or long side. I'm surprised at the lack of available information on this topic, given the importance of the subject matter. This impacts pretty much every options trader at least once every quarter. Any light that you could shine on this through your fantastic radio network and website would be very much appreciated.

The Crystal Ball: Apple and other earnings next week, which have an impact on vol premium. The bulls could be coming back in force.

Volatility Views: The Value of Gamma

Volatility Review: Gold vol is getting crushed and is off about 4%, with similar action happening in silver. Money is leaving gold and entering bonds and stocks. The Bernanke straddle is in full effect as money flows in from Asia. Lowest realized vol in Gold was charted in early April, with vol spiking ever since. Vol of vol is around 170, and is likely going over 200.

Volatility Viewpoint: Today guest is Shreyas Chari, Principal at Satwic Capital Partners. He discusses gamma and its relative value in the marketplace, as well as other aspects of volatility.

The Crystal Ball: Weekly options are becoming more efficiently priced.

Volatility Views 85: Responding to Great Listener Questions

Volatility Review: It is somewhat surprising to see how little the recent European crisis has impacted the VIX. Perhaps the market over-reacted to the news in Cypress. NASDAQ 21-day realized volatility is below that of the S&P.

Listener Mail: Keep those questions coming in.

• Question from Jim Petchi: I have been listening to Volatility Views for a while, but I still do not understand how the volatility of a specific option relates to the probability of the change in stock price. Does the implied vol of a specific option (like AAPL today at 443, with a April vol of 29%) mean that AAPL has a 29% chance of making a one standard day deviation move, which is 67%, in that time frame? If not, is there some way of relating the implied vol with probability?
• Question from A Heiner: (in reference to "Risk Reversals Trade BPI" an unusual activity article) What does this mean? I apologize but I do not understand the market and what this says about the future of BPI and its price. Can you break it down for me?

The Crystal Ball: The crisis in the Mediterranean will likely get resolved soon, and in a way the market finds favorable. Happy Holidays everyone! We will be back in two weeks.

Volatility Views 84: May You Live in Interesting Times

Volatility Review: We are back after a short break last weekend. Most major indexes have reached near-record lows highs. As a consequence, because of the inverse relationship, volatilities are extremely low. Could this be the norm going forward? Is there a line drawn in the sand with options' implied volatilities?

Listener Mail: Our team tackles your questions.

• Question from Phil Fan: Do you ever plan to host a live recording of Volatility Views? If so, when and where? Please put me on the list.
• Question from Tim Moore: The host frequently says that vol traders don't understand basic math. What does he mean by that?
• Question from X64: Are there any good tools out there that show up-to-the-minute, even intraday, realized volatility?
• Question from Aston Meyer, Brooklyn, NY: I enjoyed your recent show with Randy Swan. However, do you really think it is realistic for a client to expect his financial advisor to have a working understanding of volatility, in addition to all the other things they keep track of for their clients (stock selection, tax implications, risk tolerance, etc.)? Thank you for this wonderful program, I have learned quite a bit.
• Question from StatArb: Do you think they'll pull all the vol swaps onto SEF's along with the CDS's?

Crystal Ball: Very rarely have realized and implied volatility been this close to each other, making this an interesting period. VIX settlement next week.

Volatility Views 83: Check Your Levels

Volatility Review: We had quite a roller coaster week in terms of implied and realized vol. The importance of vol of vol has been showcased.

Listener Mail: We have a huge mail bag today.

• Question from Big Ned: Is it possible for an options trader to ever truly be flat, aside from closing his positions?
• Question from Alex Gumble: How do market makers manage their volatility exposure when everyone else in the pit (or bin) has the same position? That seems like a difficult prospect.
• Question from Mikhail, Ukraine: Why do I need to worry about Vega? I only sell strangles and iron condors. The risk is clearly defined. If price is good, I sell. I price is not good, I don't sell. It’s very simple.
• Question from Nix01: I liked Mark's article "VIX Activity - Hedge or Sign" from 2/27. Can he elaborate on the show?
• Comment from Rich@PinProjects: Rule of 16, nice one! Thanks @Options #Volatility.
• Question from Talos_A: Insider trading has been making many headlines. Do you feel sudden spikes/drops in volatility on a strike are the best indicators or unusual activity/insider trading?
• Question from Nickel Silver: Where can I buy shares of VolX? Is it publicly traded?

The Crystal Ball: Sequestration! Keep an eye on Europe as well. Where can vol go next?

Volatility Views 82: Scalp Gamma, Trade Vega

Volatility Review: What is going to shake up the world of volatility? We did see a small pop this week. The weekend effect.

The Mail Bag: So many questions!

• Question from Tim Ross: I’ve heard the hosts refer to "scalping gamma" before on the program. What does that mean and should I be doing that in my own trading account?
• Question from Nitin Gulati: Mark, Volatility Views is the best educational show in world of options trading and education. No one could have assembled such a great team of hosts. Don often refers to “vol of vol” in his comments, but how can this serve as a useful tool in a retail trader’s arsenal? On second thought, we often use vol cones to understand how realized vol is at lower levels on some individual names, as well as indexes. If implied vol is priced in lower further out, doesn't that mean the market is pricing a muted move in the future? How would a trader differentiate if he only wants vega, since gamma might not be cheap?
• Question/comment from Southbaytrader1: Looking forward to the weekly fix from your show. Good humor in a world of darkness! When's the next stand-up tour? I enjoyed the vol series discussing Taleb's strategies--interesting to hear competing viewpoints. I would like to hear more on vol futures versus cash, assignment risk, and possible spread strategies for mitigating cash outlays. Your thoughts on margin would be great too.
• Question from TBill01: What do you guys think of the recent spike in VIX? It seems to be way out of whack with actual movement of S&P. See? I listen!
• Question from Umberto Toli: Do you feel the current options tax treatments put forth in congress, particularly the covered call tax treatment, will stifle volume and/or drive exchange volume into the OTC realm? If so, what impact do you feel this would have on overall S&P and NASDAQ volatility?
• Question from Et_Moor16: I am thinking about dispersion trading in AAPL, V, QQQ, GOOG, and AMZN. How much do you think I need in my account to do it?
• Question from Finn Tompkins: What does the Vol Views crew think of the underperformance of the emerging markets VIX relative to the actual VIX? Is tail risk just overpriced in the U.S. or is it a bargain in the emerging markets?

The Crystal Ball: Is the current level of realized volatility sustainable?

Volatility Views 81: Capturing Volatility Premium

Volatility Review: It’s about as blah as it can be with very little happening in the world of volatility. It’s not to say we told you so. If there is any edge, it’s in March VIX futures.

Volatility Viewpoint: Today's guest is Scott Maidel, Senior Portfolio Manager, at Russell Investments. He discusses:

• His paper, Capturing Volatility Premium through Call Overwriting (http://www.russell.com/US/insights-research/capturing-the-volatility-premium.aspx)
• The ways to capture the volatility differential between realized and implied
• Quantifying the term “overwriting”
• Findings that overwriting can outperform the S&P 500 in the long-term
• How the message is being received by the retail audience
• How the paper quantifies the impact of the roll on weekly options and when the best time is to do so

Crystal Ball: Is VIX at 11 possible? Skew may be the best way to go for now. Don and Andrew find common ground.