Minyan Mailbag: SPY Daily Range & Compression
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I've been monitoring the daily range of the SPY for a little while now ((High - Low) / Close) just to follow intraday volatility on a daily basis. I'm attaching a graphical version of it, where the green is the day to day movements, the blue is the 10-day moving average, the red is the 50-day moving average, and the black is the 200-day moving average.
Until today I was struck at how low intraday volatility had been since the first London bombings, with only two days having intraday ranges above 1%. The afternoon move today broke us above the little magenta downtrend line I've drawn in which begins with the GM choppiness in April.
I've appreciated all of your notes about compression in the marketplace and this is the way that I've really seen it first-hand. I'll be curious to see if a day like today breaks us out of the low volatility doldrums for a little while or if the "income stream" funds use any uptick in vol to put more money to work.
Most measure historical volatility close to close without drilling down into what happens during a trading day.
Your work shows that more volatility occurs when looking at intra-day moves. In my shop we call them "round-trips" where we can actually buy and sell deltas in the same day. In other words, let's say a stock was up enough for us to re-adjust our deltas by selling some and then it actually winds up down on the day where we can buy them back. The more "round-trips", the more volatile a stock and the more money we make on long volatility positions.
This is what matters to us most. We have seen a very limited amount of these opportunities over the past year, but I did make a comment that they were beginning to grow recently. Yesterday was the first time since May 19, 2004 that the Dow was up 100 points and closed down.
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