Black Swans

Mebane Faber wrote a paper entitled, “Where the Black Swans Hide” where he finds that volatility clusters and that most of the outliers in the market occur when the market is already declining. In trading VIX I am often positioned short vol of vol, short index vol or delta in this case, as well as short gamma. Any short vol or short gamma position has a risk of blowing up if losses aren’t capped so it’s imperative to be sensitive to any event that could result in an outlier move in the market. A quick look at the movements in VIX show quite a difference in 1 day movements when the overall market is above or below its 200 day simple moving average:

Above 200 Day Below 200 Day
5/7/2010 8.15 16.54 10/22/2008
5/6/2010 7.89 16 8/8/2011
10/30/2009 5.93 14.12 10/15/2008
4/27/2010 5.34 13.23 12/1/2008
3/16/2011 5.08 11.98 9/29/2008
1/22/2010 5.04 11.33 10/24/2008
5/14/2010 4.56 11.09 8/18/2011
2/4/2010 4.48 10.54 1/20/2009
2/22/2011 4.37 10.47 5/20/2010
11/27/2009 4.28 9.12 11/6/2008
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~ by largecaptrader on July 22, 2012.

One Response to “Black Swans”

  1. […] as a follow up to previous post, I did a similar study on SPX movements using my primary breadth indicator that I follow, looking […]

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