|
PureBytes Links
Trading Reference Links
|
This is GREAT news for option straddle sellers.....yummie premiums out
there......
let the vols roll !!
> -----Original Message-----
> From: Valinda48524@xxxxxxx [mailto:Valinda48524@xxxxxxx]
> Sent: Friday, March 10, 2000 11:09 PM
> To: Omegalist
> Subject: Systems giving more false signals
>
>
> This was posted on Decisionpoint.com as a sample.
>
> The point that grabbed my attention was that systems give more
> false signals
> because of increased volatility even though more opportunities
> are created.
>
> Comments?
> **************************************
> JOHN BOLLINGER'S CAPITAL GROWTH LETTER
> 3/10/00
>
> Capital Growth Topics #316: Volatility
>
> On the lower right-hand corner of the front page of Wednesday's Investor's
> Business Daily there was a chart depicting volatility on the NASDAQ. The
> methodology was to calculate the average daily range for the NASDAQ
> Composite for each year from 1982 to date. In the period 1982 to 1995
> volatility ran near or just below 1%. Starting in 1996 it broke
> out of that
> range and has steadily risen to 3%, a tripling of the prior normal range.
>
> A study conducted by us of the S&P looking at a 10-week average of the
> weekly ranges shows a similar pattern with volatility increasing by about
> 0.4% per year. A study of the NASDAQ Composite shows a slightly higher
> annual rate of increase, 0.6% per year.
>
> The IBD chart gives the impression of an exponential increase in
> volatility--that is a to say a rate of increase that is growing
> every year.
> Our study suggests that this is not the case. I suspect that this illusion
> is largely due to the last period, 2000, which includes only two months of
> extremely volatile data in the average. A larger sample will most likely
> bring the average range lower and more in line with the linear rate of
> increase observed for the S&P.
>
> The increase in volatility has many implications. To point to a few:
>
> Traders have more opportunities.
> Investors are more nervous.
> Stops loss orders are hit far more often in the course of
> "normal" trading.
> The signal-to-noise ratio is increasing. (This makes analysis harder.)
> Indicators behave differently than they have in the past.
> Systems give more "false" signals.
> There is more to talk about on CNBC.
> Market makers find their jobs harder and more profitable.
>
> One example of the changes demanded by increased volatility is the
> EquityTrader risk-adjustment procedure. In the past we calculated positive
> and negative betas. These measure a stock's responsiveness to up and down
> moves in the market. (Normal = 1.0) We then used negative betas
> greater than
> one to penalize the ranking of stocks whose downside volatility
> was greater
> than the markets. Well, as volatility has risen betas have risen
> too and our
> risk-adjustments became too great. So, we had to go to an adjustment
> procedure that looks at the differential between positive and
> negative betas
> rather than the negative beta on its own.
>
> For a long time my forecast has been for increasing volatility and that
> remains my forecast. Be careful out there!
>
> John Bollinger, CFA, CMT
>
>
>
|