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Doin' It Bloggystyle: Key Reversal, Product Inventions, Subprime, Blame Canada, Say It Ain't So


Minyanville brings together the best of what they are saying "out there" about the topics we're talking about right here


Blogs themselves need no introduction, as they get as much publicity as pretty much anything these days, save maybe the latest Britney news. There's an expanding world of excellent financial blogs, covering pretty much everything from global economics to swing trading. Minyanville's goal is to bring together the best of what they are saying "out there" about the topics we're talking about right here.

Key reversal yesterday, or just a rally within this broader trouble? Personally, every chart I look at has a downtrending MA line and a higher recent high overhead. But I'm just an options trader.

  • Jim Kingsland remains unimpressed.
  • Fari Hamzei sees a VXO in the high 20's and a VXN in the low 30's before it all ends.
  • Fallond needs a push above Monday's highs before getting convinced.
  • I realize I only linked cautious opinions above. But I really can't find the other side.

They just never stop inventing products.

  • How come I didn't think of this. VIX and More finds a new product offering at the CBOE, the "VARB-X Strategy Benchmark (VTY). The new index tracks the performance of a hypothetical volatility arbitrage trading strategy designed to capitalize on the historical difference between S&P 500 Index (SPX) option implied volatility and the realized, or historical, volatility of the S&P 500 Index."
  • The idea is that the contract hypothetically sells a 3-month VIX future, and captures the difference between that and the actual realized volatility over that stretch.
  • It doesn't really make any sense though. The three month VIX future is an estimate of where the VIX will be on the expiration date. But the VIX itself looks forward 30 days, so thus the futures contract prices a volatility that is theoretically independent of the volatility between now and then.
  • If you believe product launches are contrary indicators, check this out. "The VARB-X benchmark was set to 100.00 as of June 21, 2004, and at the end of February 2007 was at a level of 159.68. Since its inception, VARB-X has reflected an annual rate of return of 19.0% with a standard deviation of 6.4%. By comparison, over the same period, the annual rate of return for the S&P 500 was 8.3% with standard deviation of 10.3%. The Sharpe Ratio, a standardized measure of return per unit of risk, for the VARB-X benchmark was 2.37-- five times greater than the Sharpe Ratio for the S&P 500 for the same time period, reflecting a more favorable risk-reward ratio.
  • In other words, option volatility has consistently overpriced realized volatility since 2004 (something I have noted over and over again in fact). So here's a simple way to capture that. So does this mean we are set for the reverse to happen, namely for options to underprice realized volatility? One can only hope.

Is it ever a bad time to talk about Subprime?

So we can blame Canada...I mean ETF's, for the current trend to list anything some quant can dream up. What else can we lay on ETF's?

  • How about throwing off some individual stock indicators, via ETF Trends.
  • Benchmarking issues? Why the S&P and not the Wilshire asks Roger?
  • Intelligent Design? ClearAM Ideas reports back from the ETF Evolution Conference.

Say it ain't so.

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No positions in stocks mentioned.
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