22 lines
1.5 KiB
Plaintext
22 lines
1.5 KiB
Plaintext
1. Realized Volatility Rises, Implied
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Volatility Rises
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The first volatility chart pattern is that in which both IV and realized
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volatility rise. In general, this kind of volatility chart can line up three ways:
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implied can rise more than realized volatility; realized can rise more than
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implied; or they can both rise by about the same amount. The chart below
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shows implied volatility rising at a faster rate than realized vol. The general
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theme in this case is that the stock’s price movement has been getting more
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volatile, and the option prices imply even higher volatility in the future.
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This specific type of volatility chart pattern is commonly seen in active
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stocks with a lot of news. Stocks du jour, like some Internet stocks during
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the tech bubble of the late 1990s, story stocks like Apple (AAPL) around
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the release of the iPhone in 2007, have rising volatilities, with the IV
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outpacing the realized volatility. Sometimes individual stocks and even
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broad market indexes and exchange-traded funds (ETFs) see this pattern,
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when the market is declining rapidly, like in the summer of 2011.
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A delta-neutral long-volatility position bought at the beginning of May,
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according to Exhibit 14.1 , would likely have produced a winner. IV took
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off, and there were sure to be plenty of opportunities to profit from gamma
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with realized volatility gaining strength through June and July.
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EXHIBIT 14.1 Realized volatility rises, implied volatility rises.
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Source : Chart courtesy of iVolatility.com |