Rounding up the last part of Adam Sussman's presentation with a look at various market insiders' opinions of HFT, and which asset classes are traded in this space.
The first installment in a series covering the Buy-Side Tech High Frequency Trading Forum. Part one covers Adam Sussman's presentation "High Frequency Trading: Understanding the Participants and Their Roles in the Market"
Second installment of Adam Sussman's presentation "High Frequency Trading: Understanding the Participants and Their Roles in the Market," featuring detail of institutional asset holdings and comparing those assets to average daily volume.
If you hold a position larger than a specified threshold in a futures or options contract that is regulated by the CFTC, your clearing firm must report it and classify your position as either commercial or non-commercial. Futures traders have been tracking these reports for years, but I'm not aware of any studies that analyze the history of VIX futures commitments...
Last week, I noted the very wide spread between short-term realized and implied volatilities. Although the selloff on Friday alleviated conditions slightly, [5] the spread is still large enough that traders inclined to be net sellers of options need not fear occasional daily increases in realized volatility.
Sure, the World Series and Super Bowl Sunday are much-anticipated. But personally, I can't wait for the excitement of earnings season, because I get to watch my favorite sport four times a year! Every publicly held company has to report not only their performance during the past quarter, but they also typically provide outlooks for the following quarter and possibly the full year as well. No other market event offers more opportunities for traders to earn big bucks not only on companies' fiscal hits and misses during the past three months, but also for the effect on shares from all of that "other" data that means so much to Wall Street.
Often in my option classes I ask the students a question that only on the surface appears to be tricky: "What comes first, the price action on the chart or the print?" Most of the time, the students give me that puzzled look which tells me that most likely they are somewhat confused, yet as the discussion commences, the perplexity becomes more noticeable.
Basically, in this article I will share with the readers an option/choice that a trader could have selected instead of going along with his broker's advice of selling a naked straddle.
The Powershares Nasdaq 100 Trust (QQQQ) is a highly liquid, very popular ETF with actively traded options. But for traders who want to implement an options strategy on the Nasdaq 100 with any precision, QQQQ may not be the optimal product...
My sense of the markets at this juncture is that elevated implied correlations are truthful, even oracular, with too-high index implied volatility representing not so much the jump risk with which the VIX is usually associated as the unwelcome prospect of individual equities tracking each other too closely.
The jump in volatility indexes noted in our previous report was met with a similar decline last week. The VIX could easily make a new 52-week low before 2009 is through. Gold implied volatility advanced sharply on Friday's price decline, with GVZ closing just shy of my 30% short-term target. The shift in the volatility skew in gold deserves attention: if traders continue to pay higher premiums for downside protection this week, that should be confirmation that the parabolic run in gold is over for the moment.
When equity index options consistently price in moves of more than 1.5% on two-thirds of trading days, Friday's trading range should not be a surprise, even if you believe equity volatility is significantly and consistently overpriced. We wouldn't expect longer-dated volatility futures contracts to move noticeably on last week's news, but even the December VIX contract only lifted slightly.
There really isn't an easy or obvious way for an investor to be highly risk-averse in this market, not when one of the biggest tail risks that people want to protect themselves against is inflation. Big investors can try taking the Taleb approach of buying large numbers of out-of-the-money options and reckoning that a bunch of them will pay off when the next crisis hits, but that's not a strategy available to most of us...
Equity index options are about as evenly priced as they've been in some time, but another continuation of the intermediate-term rally would mean more disappointment for option buyers, especially those who entered new positions in early November...
People seem to be about as loss-averse empirically as they are expected to be based on smaller studies. One reason this feature of human psychology is so important is that it is one probable cause of the persistence of the variance/volatility risk premium..
I wondered last week whether we would see a return to the reflation rally or were entering a new regime dominated by mean reversion. The price action last week counts in favor of both, as we reverted to the closing highs of the prior week; I expect a more definitive answer by November options expiration...
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