Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

ChimpTrader

Gauge upcoming high volatility

Recommended Posts

Hello friends,

I am relatively new to options trading - slowing eating like pigeon by doing some writings. For but obvious reasons, I do not intend to do the other like an elephant, so, was wondering if any experienced good soul out of you would kindly explain any technique or indicator using which I could gauge an upcoming high volatility situation for an underlying beforehand.

Many thanks!

Share this post


Link to post
Share on other sites

Have you looked at tweaking  https://www.incrediblecharts.com/indicators/chaikin_volatility.php

Basics =

On charts:

- statistically speaking, nothing has been found in markets that comes closer to following linear cycles than 'volatility'

- statistically speaking, sideways ‘congestions’ are followed by ‘volatility’

- statistically speaking, narrowing ranges are followed by expanding ranges

“statistically speaking” means these indications give no "gauge" / information about the size of next move or the risks involved... only that ‘activity’ typically follows ‘inactivity’

ie-with options, nothing (outside of astro) is reliably predictive of the variance of the next move...

ie with buying options, you have to figure out a way to play all the major waves in order to be there for the outliers

ie- hope you’re writing ‘insurance policies’ into screaming volatilty instead of buying them in dead volatility... who makes money ?  the insurer or the bozo who buys policies left and right... took taleb years to figure that out and he’s a pretty smart cookie... sorry  - off topic now.... and congestion time is due to end :)...

hth

Share this post


Link to post
Share on other sites

Ha ha ha, yeah, the man who could only predict anything was crucified 2000 years back :D

Sorry for replying late I was in a pressure cooker :)

On 9/10/2018 at 8:10 PM, zdo said:

hope you’re writing ‘insurance policies’ into screaming volatilty instead of buying them in dead volatility... who makes money ?  the insurer or the bozo who buys policies left and right... took taleb years to figure that out and he’s a pretty smart cookie... sorry  - off topic now.... and congestion time is due to end

Statistically writing when volatility is unusually high makes Vega calm her wrath and premiums are lost faster as volatility subside, and I avoid low volatility, because you never know, although 70% of the time markets remain consolidating, but still why take risk, when some another Stock, ETF or Index is ready to consolidate.

After 2 years of pure options trading, nothing ever gives me any confidence to buy options no matter what a situation might be. I find this really strange, where the world is going crazy to throw their chips at cheap OTMs, some folks bragging in Social Media - how they bought limited edition Porsche in a week :angry:

Having that said, I am aware that I haven't seen any knee jerk volatility yet. I was in High School in 2008, used to see some Senior folks crying after loosing, it cautioned me and I took my time to learn things, got settled with a job first, then started to trade from 2015.

Your analogy was great, man! Would you kindly elaborate when you say:

On 9/10/2018 at 8:10 PM, zdo said:

ie with buying options, you have to figure out a way to play all the major waves in order to be there for the outliers

Thanks! Will wait for your reply......

Share this post


Link to post
Share on other sites

chimp

re: "ie with buying options, you have to figure out a way to play all the major waves in order to be there for the outliers"

This was just basically restating the previous point in that post.  ‘with options nothing is reliably predictive of the variance of the next move’.  Going back to the insurance analogy - time gaps without  ‘coverage’ is not a good idea. Boils down to the same problem as Nassim and all options players have - how to afford ‘coverage’ on everything so you can be covered with the darkened swan does show up ... to cover all the costs and turn a profit

Example:  (and, btw,  I can’t remember all the specific and details... anyways...)mid 1986, in addition to day trading big Spooz, bonds, etc, I started trading options ‘on the side’.   In feb 87,  using a ‘system’ (ie it wasn’t on a ‘whim’), it bought way out the money soybean calls and made a killing...  thought I was an options trader!  So I 'followed’ the system forward and it missed several significant moves ... it ‘reverted’ ... whittled away at my ‘killing’.

Long story short - I concluded that properly priced options ALWAYS screw the  premium buyer PERIOD.   So, I stopped buying premium but continued selling premium in treasury, etc options... got deeper and deeper into the time consuming greeks ... and had less and less fun ... and then I became not an options trader :)  ... I love leverage.  But turns out it’s steady leverage I love... and not variable leverage in a 'actuarial world'...

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • Date : 12th December 2019. Lagarde prepares ECB debut – 12th December 2019.   Policy unchanged Projections unlikely to change much Clues about review sought Style in focus Presiding over her first presser of the European Central Bank today, Lagarde is expected to confirm once again the current policy setting, giving time to ECB to focus on the planned review of its overall policy framework.Final Eurozone GDP and PMI readings broadly supported this neutral picture, while the confidence that a deep recession can be avoided is strengthening (Figure 1) despite the fact that German manufacturing and production numbers still look weak. The exports and the overall trade are actually holding up much better than expected, which together with still strong labour markets is underpinning hopes the net exports and consumption will continue to support growth not just in Germany.Figure 1 : December German ZEW investor confidence outcome, end the year firmly in positive territory at the highest level since February 2018.As there is nothing in the data really to challenge the ECB’s overall policy stance, the focus firstly turns into the tone and presentation style that President Lagarde will have. The “risk” is that the presser will be equally uneventful as her testimony before the European Parliament. Lagarde’s team building exercise seems to have worked and at least in public there has been a pretty consistent message since she took over, which is very likely to be confirmed today. Additionally it will be interesting to see whether she will back fully Draghi’s package.Citi Bank: All key interest rates will likely be left unchanged, and the forward guidance reaffirmed. The main interest at this meeting will be the new Eurosystem staff projections, extended to 2022, to gauge whether the September package will be sufficient to bring inflation back into line with the ECB’s target over the forecast horizon. If not, investors’ attention will quickly turn to the ECB’s toolbox and what instruments the Governing Council would be willing to use and when, in order to defend its credibility in the absence of large fiscal support. The upcoming strategic review of monetary policy will also likely be the focus of many questions.Hence as reported by Citi, other than Lagarde’s style, ECB projections could also monopolize the attention. Even though, the ECB remains ready to act again and tweak all its measures if necessary, it has already done a lot and now needs to keep an eye on the side effects of the very expansionary monetary policy, while politicians need to do their bit to support the economy.The central bank won’t be reducing the degree of stimulus any time soon with many analysts supporting that this will continue until mid-2020 unless there is a major change in circumstance.Central bankers will be conducting a comprehensive review of the policy framework, however, with a special focus on the inflation target. A more symmetric definition, which stresses that the ECB can see through lengthy inflation overshoots as well as periods of too low headline rates is likely to come in the first quarter of next year. The inclusion of owner-occupied housing costs into the HICP number also remains a challenge especially as house prices are rising rapidly in some centres, also thanks to the low interest rate environment.Bund yields have nudged higher over the past week, but the German 10-year so far failed to move lastingly above -0.3%. Uncertainty on trade and Brexit are keeping a lid on yields, although there is the risk that if things go the way markets want and a phase one trade deal is confirmed and in the UK PM Johnson gets his majority, there could be a sharp rise in yields, if markets price out further easing and start to look ahead to central banks removing some of the stimulus.However this is far away for now, while central bankers are not looking eager to add further easing.Always trade with strict risk management. Your capital is the single most important aspect of your trading business.Please note that times displayed based on local time zone and are from time of writing this report.Click HERE to access the full HotForex Economic calendar.Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!Click HERE to READ more Market news. Andria Pichidi Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • USDJPY Remains Biased To The Downside   USDJPY faces further price weakness despite its price hesitation on Tuesday. On the upside, resistance comes in at 109.00 level. Above this level will turn attention to the 109.50 level. Further out, we expect a possible move towards the 110.00 level on a break of that area, A cut through here will open the door for more gain towards the 110.50. On the downside, support lies at the 108.00 level where a break will target the 107.50 level. Below that level will turn focus to the 107.00 level and then lower towards the 106.50 level. On the whole, USDJPY faces further downside threats.        
    • Sterling Advances Barely Hours To UK Elections As Latest Poll Predicts Conservatives Win In just two days from now, a major event that will set the trend for the currency market for the year 2020, the UK elections will be held. In the face of a Brexit extension, UK prime minister had pushed for an earlier election in the hopes of having a majority conservatives win in the parliament which will make the Brexit deal pass through easily. As the clock ticks, with barely less than 48 hours to this epochal event, the newest poll by Survation conducted for ITV’s good morning Britain show predicts a Boris Johnson win by 14 pts. ahead of Jeremy Corbyn‘s Labour party. The Brexit deal seemed to give the conservatives an edge as it accounted for 32% of the vote decision while NHS gave Labour party a slight edge. On the overall, a majority vote of 42% was predicted for the conservatives while Labour had 28%. Market Reaction as the Clock Ticks Optimism looms in the market as the prediction of a conservatives win will ease Britain’s exit from Europe by January 31 deadline. The EUR/GBP pair continued to fall till the early hours of today breaking the 0.8411 trend line targeting the 0.8149 resistance level. GBP/USD pair rebounded to consolidate briefly targeting 1.3381 resistance levels. Technical analysis within a 4-hour MACD shows that both pairs may likely touch down. CAD edged slightly higher advanced by USMCA news but yet to consolidate gains. The USD against a basket of five major currencies held steady awaiting FOMC’s minutes due out tomorrow. Against a basket of currencies, NZD’s dominance is the highest. Sterling also gained momentum firmed up by approaching UK elections. The safe-haven, the Japanese yen, and Swiss franc remain pressured as major events that will shape the market for 2020 are been anticipated. On the Asia side, significant market activity wasn’t recorded as most currency pairs held steady within a day’s range. In the Asian stock market, not so much activity was recorded being weakened by recently released Chinese PMI numbers. Most of the indexes closed a little lower while US stocks rose swiftly after Friday’s release of US non-farm payroll reports. The outcome of the December 15 deadline set by the US for the signing of a preliminary trade pact will determine the week’s direction and even further into the year 2020. Also due out later in the week is UK GDP figures and ZEW released out of Germany.
    • Date : 11th December 2019. FOMC Preview – 11th December 2019. FOMC Preview No policy changes or surprises are expected with today’s announcement (19:00 GMT) and Chair Powell’s press conference 30 minutes later. It will be interesting to see if, as expected, the voting is unanimous this time round. The FOMC members have expressed significant differences of opinion during 2019 as three rate cuts were implemented.  The apparent paradox of low unemployment and low inflation, the new “norm”. The two-digit unemployment rate (U-3) in November edged down to 3.53% from 3.56% in October, and a 3.52% cycle-low in September, all below the 3.58% prior cycle-low in April and a 4.00% rate at the beginning of the year. Current readings remain much lower than the 4.2% long-run unemployment rate projection noted in the September SEP, it is expected that this estimate will be trimmed today. Headline CPI rose 0.4% in October while the core index rose by 0.2%, for respective y/y gains of 1.8% and 2.3%, versus September figures of 1.7% and 2.4%. Today the November headline is expected to fall again to 0.2% and the core remains flat at 0.2% too. The Fed’s favoured inflation gauge, the PCE chain price measure, rose 1.3% y/y in October and expectations are for an uptick to 1.4% in November. The core PCE chain price measure rose 1.6% y/y in November, versus 1.7% in September, and expectations are for the pace to hold at 1.6% in November. The FOMC’s latest median estimates for 2019 inflation are 1.5% for the headline and 1.8% for the core. Hence, the focus will be on the Fed’s new quarterly forecasts, with expectations raised and likely to be mostly bullish results with a bump up in the median growth projection and a drop in the median dot to reflect a steady stance through 2020. However, the individual dots are likely to show both, forecasts for cuts and hikes. Chair Powell is expected to reiterate the US economy and policy are in a “good place,” (a phrase he has used a number of times lately) and could sound a little more upbeat after the strong jobs report. But, he will continue to warn of downside risks. The FOMC isn’t likely to announce any new measures on reserve management operations (QE?) or a repo facility. All steady into 2020 and beyond. USDIndex remains biased to the down side but has support around 97.40 and the 200-day moving average. A breach of this key support zone brings in 97.00 and the October low of 96.85. A break over 97.80 (the confluence of the 20 and 50-day moving averages) and 98.00 would be required before a re-test of the recent high at 98.50 could be considered. Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HotForex Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Stuart Cowell Head Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.