We've mentioned before that our preference is to close out short option positions before the dynamics of expiration week have a chance to kick in. In a nutshell, while it's true that theta declines more quickly as expiration looms, tempting option shorts to hold on as long as possible, it is also true that gamma rises more quickly closer to expiration…
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…
Weekly Options Volatility Tracking Report: No Surprises In Gold
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..
One average of the volume of contracts traded in VIX futures recently exceeded the level observed during the financial crisis of 2008, indicating that sophisticated traders and investors may be preparing for an end to the recent run-up in equity prices.
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…
Who should buy options (ordinary or "exotic"), and who should sell?
Weekly Options Volatility Tracker Report
As I've noted on many occasions, the relationship between spot VIX and longer-dated VIX estimates has not "worked" as a directional indicator for at least several months. This looks like a genuine puzzle: the premium VIX futures traders are willing to pay and/or requiring in order to sell is too steep and has been too persistent to be dismissed as a phenomenon typical of the "wall of worry" that bull markets proverbially climb…
Gold option traders rejoice! CME Group finally adjusted the strike price increments in its gold option products to $5.