Brad Zigler

Clues from the Options Market

Yes; "variance" in this context was used generically and was not meant to allude to the statistical metric.


On Oct 16 03:47 PM specguy wrote:

> Brad,
> Thanks for your clear explanation on Vega and its importance to option
> pricing and strategy. In your piece you state:
>
> " Vega is a measure of volatility, representing the dollar-per-shift
> in an option's value, as expected for each 1 percent change in the
> underlying asset's variance."
>
> Did you mean 'std. deviation' (the square root of variance) instead
> of "variance" in the above statement? I say this as you use the term
> "std. dev." 3 paragraphs below the above-cited quote as the parameter
> that a market maker would look to for valuing the option under consideration.
> You also use "variance" in other places in your article where I wonder
> if another word might be more precise.
>
> Thanks again for presenting the concept so well.

Clues from the Options Market

Jimmy -

Beta can be computed against ANY benchmark. Most typically, the bogey in money management circles is the S&P 500 (SPX), but that's not necessarily the best yardstick to measure performance for ALLinvestments.

The same caveat applies to correlation. It's one thing to say that a large-cap, blue-chip fund correlates well to the SPX. The degree of fit between SPX and a small-cap portfolio expressed by correlation, however, bespeaks more of differences than similarities.


On Oct 16 10:09 AM SeekingTruth wrote:

> Brad, thanks for the added detail on Beta. Is this the same standard
> Beta used for stocks,etc , or is it a special Beta used for options?
>
> I am well familiar with "standard" Beta for stocks and that it includes
> both randomness and standard deviation although I don't remember
> the exact formula.
> Stocks have an improved metric called Correlation Coefficient which
> takes out much of the randomness and provides a truer "in - phase"
> component for comparing two fluctuating entities.
> This is what my distant memory serves up (shaky) but any expansion
> or clarifications (a refresher) by you in your future articles will
> be greatly appreciated.
> This kind of info by/from you is much more valuable than it appears
> on the surface , and I am encouraged and pleased by this line of
> investigation and discussion.
> Please continue it! Thanks again.

Clues from the Options Market

Jimmy -

Beta is actually the QUOTIENT of two values: variance and covariance and represents a RELATIVE volatility (versus a market benchmark or index); implied volatility is an independent variable.


On Oct 15 04:22 PM jimmy46 wrote:

> Interesting and well written,
> now what stocks have you screened and found changing volatility?
>
>
> I know beta is the product of 2 numbers, so it's a bit flaky,
> but to what extent is there a relationship between beta and
> implied volatility?

Laying Odds on Inflation

Since the analysis is predicated upon market data incorporating the impact of the decade's poitical/economic drift, it actually DOES recognize--and, in fact, relies upon--a continuation of the current trend.

A Brief Introduction to Roll Yields

Holding all else static, the ideal situation would actually be the opposite, i.e., slipping from normalcy to inversion, if you held a long position in a near month. Not so much in the distant months. We can't expect to hold all things static, though. A flip to contango would indicate a growing abundance of supply presuring prices lower over the entire term structure..

Yearly Consumer Price Index's First Fall in Over Five Decades

Well, there's "inflation" and then there's "inflation."

The methodology by which the Bureau of Labor Statistics monitors domestic price inflation has changed significantly in recent years, causing several observers to question its validity.

We won't step into that fray further.

We offer, instead, a real-time metric of MONETARY inflation as a subhead to the daily "Brad's Desktop" column on Hard Assets Investor (www.hardassetsinvestor...).

As you can see from the sub-head of this article (a re-publication of the April 15 "Desktop"), our inflation indicator points to a 7.9% annual rate of currency degradation.

To put that rate in context and to see the rate portrayed graphically over the past year, see the previous "Desktop" article at www.hardassetsinvestor....


On Apr 16 01:06 AM Fighting Yoda wrote:

> CPI figures continues to understate deflation, same way it did not
> report inflation for the last decade - Home Prices. CPI only uses
> home rent or "OER" as the barometer rather than home price itself.
>
>
> OER is a process in which the BEA estimates what it would cost if
> owners were to rent the homes they own from themselves. Rent is the
> single largest component of CPI, constitutes about 25% of CPI. With
> home ownership still at record highs of 66% - probably CPI is being
> overstated by 10% or more.
>
> Deflation is here and it is real, watch out.

A New Low and an Explanation for Monetary Inflation

Let's not forget that we're really using gold as a reference point for determining the relative value of the dollar against the world's other reserve currency, the euro.

We're not positing gold as the ultimate metric of inflation (see the reference to "A Picture's Worth A Thousand Words (And Dollars)" at hardassetsinvestor... above). In the indicator's triangulation, the value of two forms of paper money is weighed against a universally acceptable form of hard money.


On Mar 09 10:52 AM Witzy wrote:

> Your point that CPI is just one (incomplete) measure of inflation
> is well taken, but perhaps gold is now seperating from inflation.
> I increased my gold position in December because I could not make
> sense of the strengthening of the US dollar in Oct-Nov even as the
> US economy was tanking. Other commentators have said as much, and
> also pointed to the subsequent depreciation of the Euro, Yen, etc
> as financial dominos fall

Understanding Inflation

Try looking at the real-time monetary inflation indicator that's updated in the HAI daily blogs (here, for example, www.hardassetsinvestor...)


On Jan 09 11:28 AM secmaven wrote:

> The CPI is a staggeringly stable number. Is there any other number
> out there, other than the speed of light, which meets this test?
> We can only conclude, and verity from personal experience, that the
> government created CPI is a managed number and therefore unreliable
> as a measure of actual inflation.

Recessions and Investor Behavior

Take note that Mr. Swedroe and Mr. Buffett are talking about indexes, not individual stocks. When you start picking issues or country markets, you lose the diversification benefit of broader market benchmarks.

It's a matter of time, really. The longer your time horizon, the more you benefit from equities. Money needed in three years probably ought not be invested in the stock market. But money that can be invested for ten or 20 years? THAT's where equities can shine.

In the long run, you can't deny that the general stock market trajectory is upward--at least as measured by broad benchmarks like the Dow Jones-Wilshire 5000 and the MSCI All-World Country Index.