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Thanks, Doc, one interesting thing about using a VIX pivot point
calculation for the next day's projection (same as the OEX or SPX pivot
point calc) and then sticking that into the charting equations, only
yesterday's volatility and price are needed to calculate todays bands.
This is unlike other bands that need many days of historical data. Maybe
this is something that should be emphasized for those making the transition
from say stock to options. Stock analysis does a lot of backward looking
at support, resistance, trends. Options analysis is very forward looking
using implied volatility. It can use historical volatility for valuation
comparisons. But when short term trading an index option, when the holding
time maybe hours or a few days, hist vol plays less of a role, unless
spreading. For example today the vix dropped and the dow rose and it
jammed up against the +1 std dev line using yesterday's values for
projecting today's resistance and support. I would be inclined to take
some profits here considering the probabilities of the current level.
bobR
At 09:27 PM 11/17/97 -0600, THE DOCTOR wrote:
>In equating the VIX to the Doow..I merely took the % daily and applied
>it too the Dow. Converting OEX moves to Dow moves would subject the
>calculation to tracking error.
>
>There is actually a DIX and obviously one could publish and calculate a
>vol index of anything with a robust enough oorder flow.
>
>Many wall street firms actually trade volatility bets in the major
>indexes where Vega can be bought and sold. You find that generally the
>trends in implied track well...not perfectly but well. OEX in fact has
>the greaterst vol of vol because of the character of the orderflow.
>There is also a cottage industry that trades vol spreads between the
>actual and the implied. Of course when thinking about it the only non
>forward projection trade would be actual versus implied.
>
>There is amajor business of vol projection. Back to GARCH and E GARCH
>vol projection. The quants I know on Wall Street say they work very
>very well. The academic work seems to support it's viability. The
>concern I have with using vol a technical indicator is that from what I
>understand of the GARCH work is that it introduces a series of market
>related(non vol)variables. If those systems work as claimed then
>modeling vol to project vol should be problematic. I've always been and
>remain somewhat skeptical about using to vol(except at extreme
>levels)itself as a tool for trading. I trade a good deal and it is a
>really important variable. From time to time it is the critical
>variable(as over the last few weeks), but often it is of no value.
>
>The classic work on using pure vol to forecast was the work done by Jim
>Yates(The Option Strategy Spectrum)and the result there were rarely
>satisfactory. In fact they were frequently devastating.
>
>If you can put your hands on the best GARCH work(stuff like the studies
>done at Goldman, Morgan and Salomon Bros)that comes from wall street
>firms you will see they are pretty good. You also see that there are a
>lot of other inputs to the model than purely implied.
>
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