Volatility is Back

Volatility has really made a comeback but it pales to the volatility seen in Japan. Here is a look at the Nikkei volatility index versus VIX:

Nikkei VIX

Nikkei VIX ratio

I don’t look often at relative comparisons from international asset classes on a daily basis. Perhaps I should as it seems like quite an attractive relative value trade. US investors could sell EWJ vol and buy SPX vol. My bias has always been to short volatility on pops and I am taking this opportunity to do the same. New volatility products such as VIX and VXX options can allow one to short volatility in a risk defined structure. I am using a combination of front month ratio put spreads, ratio calendar spreads, and hedged with long outright far month VIX options. It sounds like a complicated position but it is actually quite easily manageable and I actively trade the various legs. Volatility pops such as these are scary but they offer EXCELLENT opportunities in the aftermath. One just needs to survive the pop and that’s the whole trick to shorting volatility IMO.

 

Advertisements

~ by largecaptrader on June 2, 2013.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: