Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyan Mailbag - Volatility



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Professor Succo,

A bit frustrating watching vol take a beating, but I guess the key is

Minyan Ron


You must have a diversified portfolio of long volatility in individual names: unsystematic risk is under-priced in general because tail events are underestimated, while day to day volatility is properly priced. Therefore, in any period there will be a few number of stocks that will exhibit tail events (Anadarko Petroleum (APC) up 8% in a day makes a lot of money) to offset decay in many number of names that are trading with normal volatility. Having a portfolio of only a small number of individual names is ineffective in capturing tail events.

Conversely, systematic risk (index options) is consistently over-priced. We will either be short index options (when they are priced richly) against a basket of individual long volatility names or have no position in them (when they are relatively properly priced).

Right now we are not short index options. Right now we are long a diversified (200 names) basket of individual name volatility.

Prof. Succo

position in apc

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos