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Thanks for clarifying your earlier post Droex. Even though you have been
my teacher on numerous occassions, I as your student and realtime trader
see things a little differently.
At 08:38 AM 8/23/97 -0500, you wrote:
>Your confusing two very important concepts.
However, I am not so sure there is confusion on my part. It is quite clear
that you cannot use long term(annual) volatility studies to trade short
term(minutes, hours,days).
>Take any year in history either with a implied number(1983 - 1996)or
>simulate actual volatility.
This might be useful for someone needing an overall asset allocation
strategy, but they are taking a big risk acting on it months in advance.
The market dynamics have changed as evidenced by the long term rising trend
in volatility characteristics. Call it market demographics if you will.
>Can you find a year where the market had a positive rate of return and
>ended the year with a higher vol than the previous year?
1997 is not over yet. This might be the year.
>Go all the way back to 1945(Morgan Stanley did a study and you can
>probably get it from a Dean Witter broker)and you will find in more than
>9 out of 10 years positive rate of return in the market occuring in
>years where you record lower high in vol and lower lowss.
This is exactly what is confirmed on the smallest fractal relationship of
VIX and OEX....a rising oex is a declining vix...
>Using vol to correlate to short term movement and demonstrating coupling
>says nothing about the absolute trend.
And the absolute trend says nothing about trading in the short term. The
absolute trend, if it exists, is a relative thing, and is fraught with
volatility spikes ingeniously designed, better manipulated, to erode option
premiums. Since we are talking oex and options here, the focus has to be
where the liquidity and lifespan is...unless I am on Mars the life of the
average option is three months. So why focus on a multiyear study. Makes
an interesting study and is an element in raising fear in the current
environment...well maybe not fear, how about raising perspective.
>Is vol higher today than last year?
Yes
>Has there been a higher high? Yes it was hit on Friday....it took out
>the prvious high in 1990?
>How many times has that occurred and the market ends with a higher high
>than the prvious year? If you look at the lasst 51 years it occurs less
>than 1 out 10 years years.
>
Again, 1997 is not over yet. Investing demographics have changed.
Computerization, and expansion of the worldwide internet have added to the
volatility. The cost of trading and trading accessibility have changed.
There is a very strong possibility of a year with higher returns and higher
volatility. I would not discount 1997 being that year.
BobR
http://www.oextrader.com
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