| Home | Login | About Us | First Month for $1 | Free InvestorPerks Signup | Special Reports | Help | Contact Us |
 |
||
| Exclusively for IO Members Click Here to access your IO Premium Services, IO Portfolios, IO Investment Tools, and to Change Account Profile. | |
 |
||
Not a member yet? |
||
 |
||
| If you are not satisfied with an IO product or service, you will receive a full refund. | ||
 |
||
| Click Here for
detailed results for our InvestorsKeyhole daily Service August 09 93.2% Click Here to get Investors Keyhole reports every trading day. |
||
 |
||
| Click
Here for details on each of our portfolios including recent performance figures. Click Here to subscribe to a portfolio.  |
||
 |
||
Use the power, diversification, and low cost of Exchange Traded Funds along with our conservative strategies to squeeze higher returns out of the market. |
||
 |
||
|
Designed as a way to play unsure markets for index beating returns. |
||
 |
||
|
Use the highest ranked stocks along with our most conservative strategies to generate cash income. |
||
 |
||
|
Hedged shorter term trades that aim to make upwards of $1,000 dollars each and every month. We like to think of them as perfect. |
||
 |
||
Conservative covered call investments on solid underlying stocks along
with hedged companion trades. Investments are designed so returns will
be protected even if the stock drops in price.  |
||
 |
||
| Index beating investments that manage risk associated with capital
expenditure, stock price drops, and time. | ||
 |
||
| Hedged investments on Dividend paying
stocks that should provide index beating double digit returns.
| ||
 |
||
| Credit spread investments identified, researched, and tracked by a professional Hegdefund manager. |
||
 |
||
| Looking for MORE valuable articles and reports to help you invest smarter?. Click here for a list of reports guaranteed to give you an investment edge. | ||
 |
||
| If you purchased an IO Report, Click Here for access. | ||
 |
||
| Click
here to review and purchase what IO considers, “A Good
Read…”. Special pricing has been arranged for our readers. | ||
 IO Bookstore Looking for an investment book? Enter the IO Bookstore and receive special discounts. Click on the picture above. Pricing Information A detailed list of the tools and prices available to our members. PriorityONE Services View the extensive list of benefits for all IO members. Equity Membership Join our exclusive Country Club Membership for full unlimited access. Save over $399 a month. SPECIAL PRICE XPO Presentation See the outline for our recent optionsXpress XPO presentations. Recommended Brokers Looking for a broker with great service and options experience? More Details On Man Securities The latest auto-trading brochure from Man Securities. Investment Education Free resource to help you Learn more about investment strategies. Online E-Conference IO schedules periodic online e-conferences with investment experts. e-Conference Transcripts All the questions and answers from recent e-conferences with our experts. IO Radio A midweek review of the markets with strategies, interviews and a few laughs. Wednesdays from 8P to 9P ET. Employment Opportunities We're always looking for good people to join our team. Testimonials Read what our Subscribers have to say about IO. Reactivate Your Basic Subscription Reactivate your Premium Services Subscription for $49.95 Investing in stocks, bonds, option and other financial instruments involve risks and may not be suitable for everyone. Other important information regarding the content on this site. Click here for details. Portions of this content may be copywritten by Fresh Brewed Media, Investors Observer, VHS, LLC. , and/or FBM 2 Corp. All Rights Reserved. |
||
|
These days, there's some pretty decent divergence of opinion on which way the market is headed, but very little doubt (at least among the professionals quoted in the financial media) about where volatility is headed – higher, most certainly before the end of the year, and most likely sooner. And, to be sure, one can make a case for a bottom in volatility. For one thing, the 50-day ratio of call to put "buy to open" volume on CBOE Market Volatility Index (VIX) options has soared and recently reached its highest level since August 2008 (Chart 1). This means that the professionals who dominate VIX options trading are betting heavily on a rise in the VIX through VIX call purchases, and it would have been wise to heed similar activity in 2008 that preceded the massive rise in the VIX in October.
In further support of this strong lean by professional traders to the call side on the VIX is the large negative volatility skew of the VIX, which indicates that these traders are paying up for their VIX calls relative to the premiums on VIX puts (Chart 2). The last time the negative skew on the VIX options was this large was – once again – in August 2008.
And, not surprisingly, those who trade VIX futures are reflecting a similar bullish view on future volatility, as the September VIX futures contract is currently trading north of 29 -- a fat four-point premium to cash VIX. So why don't I just get with the program and issue a stern warning to you that volatility is headed higher, and, by implication, stock prices are headed lower? For one thing, while no one doubts the sophistication of these options professionals, note that they began favoring VIX calls in 2008 well before the VIX took off – in other words, they were pretty early. In addition, they are just as vulnerable to getting caught up in "group think" as the rest of us, and the confident pronouncements from almost all quarters about the inevitability of a volatility surge strike me as a consensus that one should consider fading. Lots of money has already been laid down on this higher volatility play, which means that there could be some itchy trigger fingers if the trade does not develop as expected, which would in itself put downward pressure on volatility. Note that volatility no longer "just happens" as the result of the meanderings of stock prices – it is also a tradable asset and the "price" for expected volatility is determined by supply and demand. And if the trading community leans heavily to the buy side on volatility, an unwinding of this trade would cause volatility expectations to plunge. And, without getting deeply into the details, declines in volatility expectations can also dampen realized volatility. In addition to the "group think" issue, there is also the fact that recent realized volatility is very much supportive of current VIX levels. The 20-day historical volatility of the SPX is currently a shade below 20% compared to a VIX of about 25. I appreciate the fact that a low VIX can also serve to dampen realized volatility, but the fact is that options traders buying SPX puts (and calls) at current "low" levels are actually overpaying relative to recent historical volatility. The "inevitability of a higher VIX" argument is a very seductive one, and it is supported by some compelling data as suggested above. But – perhaps to the surprise of some of the confident VIX bulls -- predicting the course of future volatility is a very tough game. And I would strongly suggest that you remain open to the possibility that we have not seen the lows in the VIX, and further that it should not be a total shock if we saw a VIX in the teens before it ultimately bottomed and volatility became a "buy" again.
Bernie Schaeffer:
| |
||||||||||||||||
