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  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    Sorry Macro. You must have seen my comment before the edit. The S&P500 Index being below its MAs.
    Aug 29, 2013. 03:02 PM | Likes Like |Link to Comment
  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    VIX is a function of volatility factor AND fear factor. While volatility has been relatively low for the S&P500 Index, the S&P500 Index is below its 20 & 50-day moving averages. Based on my study of median VIX levels, in a low volatility environment (which we are in now) the median VIX levels when S&P500 Index is in a short-term falling trend has been 17. So if you combine the two factors, volatility of 13.55 and median or 50% probability level of 17, one would get a better idea of "fair" VIX level. I hope this helps.
    Aug 29, 2013. 02:35 PM | Likes Like |Link to Comment
  • Essential Guide To Understanding And Forecasting The VIX And VXX [View article]
    If anyone is interested, I have shared the details of my VIX model.

    http://bit.ly/14h2Ynb

    http://bit.ly/14h2Ynd
    Aug 20, 2013. 04:45 PM | Likes Like |Link to Comment
  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    Yes, you are right. My hastily written statement from 2 comments above should have read, "I would take the trading rules & backtested results with heavy dose of skepticism". I believe Tony recognizes this as well by attaching the Grim Reaper on backtested results. The research is spot on.

    If I may give one example, I have one "trading rule" that if I take out 1 short VIX futures trade entered before the May 6, 2010 flash crash, it's CAGR would have been 182.9% with max drawdown of 39.9% since Jan 2008. This is inclusive of $8.3 million of slippage & commission costs. A hypothetical $100k account would have returned $36 million in 5.66 years. I could argue that a flash crash like the one in 2010 would not happen again to that extent, but the fact is that it did happen. Including the 1 trade, the numbers change to 156.1% CAGR with 77% max dd. A hypothetical $100k account shows ending balance of $20.5 million in this particular simulation.

    Perhaps you are knowledgeable enough to understand that a small change in parameters like # of days used in a moving average or even slightly lower volatility risk premiums would dramatically change the performance when dealing with compounded growth #s.

    I am skeptical of my own research as it pertains to simulated results (and my simulated results are superior to ones provided in the abstract), therefore, I cannot help but be skeptical of the simulated results in the abstract.

    Thank you John (& Macro Investor) for this opportunity to engage in discussion. I wish you and everyone profitable investing.
    Aug 17, 2013. 11:43 AM | Likes Like |Link to Comment
  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    John, in my research, I was able to backtest using similar methods as Tony Cooper's, but using my FVE indicator instead of Volatility Risk Premium strategy using HVOL10S. Since, Jan 2008, CAGR has been 157% with max drawdown of 44.1%. The strategy is for trading VIX front month futures. But this simulation includes 0.075 pts of slippage and $2.50 per contract of commission costs! On a $100,000 initial account without any leverage, slippage & commissions totaled $5 million.

    Yet, I believe no one would consider my or Tony's "system" as a viable trading system due to the lack of the # of trades, even though my "system" generated 2 to 3x the # of trades then Tony's simulation. He puts the "Grim Reaper" there for a reason.

    I am not dismissing the research, however, because it does illustrate the huge potential profitability of taking the other side of the Volatility Risk Premium AND also the potential risks should this premium decline in the future. The Abstract is definitely worthwhile reading!
    Aug 17, 2013. 01:20 AM | Likes Like |Link to Comment
  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    I already see problems with Tony Cooper's research. The VRP trading strategy (he does point it out) had 1 trading signal since late 2011. While in hindsight, being long XIV since late 2011 would have been an excellent trade, this is not a trading system. A trading system would be both profitable going long or short and would need to generate enough # of trades to make the "system" statistically robust and meaningful. While the breakdown of different components of volatility is spot on and the various strategies that are taken useful as a learning tool, I would take the research with heavy dose of skepticism (Grim Reaper).
    Aug 16, 2013. 02:50 PM | Likes Like |Link to Comment
  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    @ikkyu. Thank you for that info. I knew it was a matter of time before somebody else came up with similar research, although I have to give credit to Tony Cooper in approaching the research on a more disciplined approach. Now I will try to repeat the research using my way of calculating statistical volatility, rather than HV.
    Aug 16, 2013. 01:36 PM | Likes Like |Link to Comment
  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    That is my own insight, but you can look at GARCH model or Parkinson's historical volatility calculation or different variations of methods to calculate statistical volatility. These different methods would likely give you a more sensitive HV calculation because traditional close to close is way too lagging.
    Aug 4, 2013. 12:05 PM | Likes Like |Link to Comment
  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    FVE calculates the "fair value" of VIX based on 1) my own calculation of statistical volatility (volatility factor) & 2) analysis of SPY movement (fear factor) all in a visually simple indicator that one can overlay on VIX or VIX futures prices to compare not only the trend of volatility but also deem whether VIX (VIX futures) is overvalued or undervalued, thereby making it possible to design potentially profitable trading rules based on the indicator.
    Aug 4, 2013. 11:56 AM | 1 Like Like |Link to Comment
  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    The Fair Volatility Estimate model is not TA. It is actually a model calculating the "fair value" of VIX. Here are some assumptions behind the model http://bit.ly/14shxqa
    Aug 4, 2013. 11:41 AM | 1 Like Like |Link to Comment
  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    I'm not trying to toot my own horn, but since you asked, have you read my seekingalpha article? http://seekingalpha.co...

    You can also go into my blog where I have kept a journal of most of my research...http://bit.ly/18WjKse
    Aug 4, 2013. 11:34 AM | Likes Like |Link to Comment
  • Is VIX Too Low? And Where Do Volatility ETPs Go From Here? [View article]
    Why make it so complicated? Just use a weighted or exponential moving average of historical volatility and you would pretty much get the same result. Also, use Bollinger Bands on this moving average and you'd get your standard deviation levels.

    Based on options theory (also true in reality), HV is (and supposed to be) highly correlated to IV. However, the goals (value) of any statistical volatility model is 1) ability to predict future volatility of the underlying and/or 2) ability to show when to sell overvalued implied volatility or buy undervalued implied volatility.

    I applaud your efforts to coming up with your own volatility model. The analysis, however, is rudimentary in the volatility circles. But perhaps you could design some profitable trading rules based on this model to extract greater value.

    Oh, also VIX is on average 12.1% higher than at-the-money implied volatility level, and this premium fluctuates depending on IV skew. When comparing historical volatility relative to implied volatility, one would want to compare using ATM IV levels.
    Aug 4, 2013. 11:11 AM | 1 Like Like |Link to Comment
  • Apple (AAPL) amends Tim Cook's stock compensation package to tie it to the performance of Apple shares. Previously, Cook was guaranteed (provided he remained CEO) 500K restricted stock units in Aug. 2016, and another 500K in Aug. 2021. Now, only 100K units vest in those periods, and an 80K-unit annual award is given until 2021 provided the performance of Apple shares beats at least 2/3 of S&P 500 companies in a given year. The award gets cut by 25% if performance is in the middle third, and by 50% if in the bottom third. Apple says it wants to tie a portion of exec. compensation to performance, and that Cook "is leading this initiative by example." (8-K[View news story]
    I'll use the hot restaurant/bar analogy, which applies to many tech firms and segments of industry. When the "cool factor" fades, revenues growth peaks, then management focus turns to cost cutting and micro management, employee morale starts to decline and "teamwork" atmosphere turns more towards "cut throat" competition. What may seem like prudent business decisions actually backfires and accelerates the decline (which happens all the time in restaurant/bar sector).

    Apple needs to focus on innovation, period.
    Jun 22, 2013. 02:39 PM | Likes Like |Link to Comment
  • The VIX started showing signs of life this week, a development that historically doesn’t bode well for stocks. The so-called fear index closed above 20 Thursday for the first time this year before pulling back a bit yesterday. The odds of a market rally over a three-, six- and 12-month time horizon are at their lowest when the VIX is 20-25, according to Citigroup data that goes back to 1990. [View news story]
    VIX historically has 3 equilibrium range levels--the median ranges depending on whether SPX is moving up or down and in relation to its moving averages . 1) low equilibrium median range 13-18. 2) Historical average median range 18-24, and 3) high equilibrium median range 20-28. Here is link to my past seekingalpha article http://bit.ly/11UUE7L

    Whether intended or not, global central banks' actions (especially from Japan) have elevated structural volatility away from the low equilibrium range back more towards normal. I would expect at this moment that the new range could be 15-20, which would be healthy for the markets.

    Historically, when VIX remains in a low equilibrium environment for too long, market bubbles form. According to concepts by Nassim Taleb's anti-fragility, reintroducing some volatility to the system would be a healthy development over the long run. Of course, the risk is volatility getting out of control and VIX moving back to a high equilibrium.
    Jun 22, 2013. 02:20 PM | Likes Like |Link to Comment
  • Apple (AAPL) amends Tim Cook's stock compensation package to tie it to the performance of Apple shares. Previously, Cook was guaranteed (provided he remained CEO) 500K restricted stock units in Aug. 2016, and another 500K in Aug. 2021. Now, only 100K units vest in those periods, and an 80K-unit annual award is given until 2021 provided the performance of Apple shares beats at least 2/3 of S&P 500 companies in a given year. The award gets cut by 25% if performance is in the middle third, and by 50% if in the bottom third. Apple says it wants to tie a portion of exec. compensation to performance, and that Cook "is leading this initiative by example." (8-K[View news story]
    This is not necessarily good news. It depends on the details and how much and to what extent compensation is/will be tied to stock price performance. This could potentially lead to cascading changes to Apple's corporate culture (which used to be a strength) starting from the top. Too early to tell...
    Jun 22, 2013. 02:01 PM | Likes Like |Link to Comment
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