Where Did Common Sense Just Go?

Terrapin Trader
where did volatility go?
 

where did volatility go?

The above shows the dramatic drop in volatility- ie options prices and therefore perception of risk. The link below is an article that may be of great interest.

http://seekingalpha.com/article/4028329-vix-dead

This happens from time to time and I always think that the market rises on lies and dumb money and drops on the truth. That’s a pretty harsh indictment, but I have some history here. For years I banged on about the subprime crisis. The European Zombie banks etc. The financial sector is in the same or worse state now as in 2008 in many ways. So why the drop in vol? The US markets hitting all time highs, US debt hitting all time highs-what’s to worry about?  £1000 in the current account and an overdraft of £1,010 is solvency by delusion

How Does This Affect Our Trading?

Well we’ve had an ok run this year but Brexit and Trump conspired to put roadblocks in the way. Those spikes in the VIX chart reflect those events. We need to know that the market can turn on a single event that cannot be anticipated.  That does not mean it cannot be traded. So, if options are cheap, we can play direction. To the upside or the downside, but to try and sell premium when vol is very low is a dangerous game.

 

Trade 10 Looms and the Luck Might Just Run Out

The winners to date have been based on the most casual approaches to entry, and indeed I was hoping to get some horrible outcomes. Paper trading is free and serves us well in real time, but it’s not real. We need to find some losing trades to spice things up a bit. We need to show a trade repair. Stick with us

 

Published by Terrapin Trader

First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

1 Comment

  1. The above is a personal view on how we can trade options given these conditions- I hate these rising markets when the darker side of me believes Armaqgeddon is only a heartbeat away! Others may be less gloomy. It makes me laugh when the clowns in the media say it has been a good day for the markets when they rise. It’s only good if you’ve sold the stock you bought much lower.Better to rejoice when the market has dropped 50% because you will,as in 2009, most likely make money. The worst investors buy at the top…………………the professionals.Kidding!!!!

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