|
PureBytes Links
Trading Reference Links
|
This is very interesting DOC. As you point out one of the keys here is the
volatility expectation for the next day. If we use the Keyline Pivot Point
(H+L+C)/3 or (O+H+L+C)/4 or AvgPrice in Easy Language as a projection for
both the volatility and the OEX for the next day and then run it through
your calculations using VIX as data1 and OEX as data2 then we come up with
the volatility projection bands as depicted in the attached .gif. One
interesting thing here is these bands do not require the averaging of price
or volatility over an assumed number of days as is done in Bollenger bands
etc.
-------------------------------
{VIX IN DATA1, OEX IN DATA2}
INPUTS: N(300);
VALUE1=((AvgPrice[1] OF DATA1)/SquareRoot(N))/100; {equals one std dev in
percent of data}
VALUE2= (AvgPrice[1] OF DATA2)*(1 + VALUE1); {upper band}
VALUE3= (AvgPrice[1] OF DATA2)*(1 - VALUE1); {lower band}
PLOT1(VALUE2,"");
PLOT2(VALUE3,"");
----------------------------------
BobR
At 06:20 PM 11/15/97 -0600, THE DOCTOR wrote:
>It is a pretty simple calculation. I merely took the VIX...currently
>about 34%......this reprsents an annualized number...and converted it
>into a one day estimate.
>
>The vix assumes about 300 observations a year for volatility.
>Converting a yearly number to a daily number is simply taking the year #
>34% and dividing it by the square root of the days. The square of 300
>is about 17. I'm doing very rough math to keep it easy. 34% annual vol
>divided by 17(to convert to daily)is 2%.
>
>A one std deviation move would be +/- 2% (this should happen about 68%
>of the time.
>
>
>A two std dev move would be +/- 4%
>
>A three sd move would be +/- 6% and this should/could occur about 1% of
>the time.
>
>With a Dow at 7600 this equates to about a 450 point move which we Could
>see more frequently than once every ten years.
>
>The fact that we had one soon thereafter is sort of indication that we
>are really in a very volatility market.
>
>In previous posts I've talked about the "fat Tails" condition which
>actually distorts implied vol and of course the VIX. Real implied, if
>the price distribution were normal, would be lower. Except for the last
>decade we have lived in a period of non normal distributions...the
>condition of fat tails. Fat tails are probably associated more with the
>state of technology and trading cost(TOO LONG TO POST THE WHOLE
>CONCEPT),but essentially because it's cheaper and easier to trade, there
>is much more trading and therefore the market moves and stock moves are
>probably bigger than expected.
>
>I did a seminar this morning for an Omega users group in 1000 Oaks
>California and the topic of key interest was vol. Vol is what short
>term option trading is all about...and one should have a good
>understanding of it....a real opinion of where it will be on the next
>day...or they should avoid short term trading.
>
>I know it sounds like a tease...but people who understanding option vol
>have been coining money all year. There were actually a series of
>parties in Chicago Tuesday night after the market break. The kind of
>success stories being tossed around all had $1,000,000 plus numbers
>attached to them.
>
>If you want to learn more a must read is Shelly Natenberg's book on Vol
>based trading.
>
>Good luck.
>A two std deviation move would be +/- 4%
>
>
Attachment Converted: "c:\eudora\attach\vol bands1115.gif"
|