Autor: Matraquilho
Data: 04-05-2003 13:19
The markets always convey a message. Our job is two fold: a) we must interpret the message correctly, and b) we must then decide whether the message of the market is correct, and go with the market, or, whether the message of the market is incorrect, and thus go against it. Last week the action in the options markets conveyed -in my view- the message that investors saw no need to obtain downside risk insurance for their portfolios, instead, they were pre-occupied with positioning their portfolios for an upside impending move. It could be that the message is correct, and the real risk is on the upside. However, for the very short term, the odds favor the opposite. Let's take a look at a couple of charts. The first one is the ratio of the NDX/VXN with 200 day volatility bands. We can see that even during the bull market of the 1990s, every time the 200 day upper volatility band was briefly violated, almost immediately a decline ensued. In one occasion it marked the major top prior to the 1998 decline, in another, it marked another major top in August of 2000, and in between, it has marked several short term peaks.
Moreover, for the first time since August of 2000, I found on Wednesday and Thursday of last week, several June SP puts, trading at a 25% to 35% discount.
D.B. How about the implied volatility being below the actual volatility? (see chart by ivolatility.com)
"The point at which a competitor is pursuing the best possible strategy, given the strategies of the other participants" - John F. Nash
TAUuuuuuuuuuuuuu
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