Where's the Volatility: Part 3

I believe it’s time for another entry to “Where’s the Volatility” so let’s dive in.

If you don’t know what this is…. well… check out the last two installments

Round 1: October 9th

Round 2: January 16th

Let’s Dive in to Pt 3

Close/Close Ranges vs Intraday Ranges

Close/Close Ranges

Realized Vol and the Market

We’ve seen quite a a roll-off in realized volatility and are generally at an area where realized vol can statistically only go up.

If you don’t understand why RV matters - it determines how Volatility Control Funds measure market exposure.

So generally can only see realized vol go up from here for the next few weeks but there is definitely a path to see some minor RV crush into 6/7s during first two weeks of August.

The above shows the natural drift assuming no additional volatility.

Intraday Ranges

VIX

It’s Pre-FOMC so going to break down the two paths I see the market can take

VIX positioning for the next four weeks

• This week (left) is pretty much over but over 20 and we can see quite the move higher but there’s quite a bit of downside VIX positioning.

• Next week (middle) - large straddle in VIX; ~18k bought VIX puts for 17 and 18/25 calls are net bought

  • This covers FOMC

• Following week into VIXEX (Right) - Lots of upside hedges

  • Recall this is the hedge to the Dispersion trade unwind and Correlations going to 1

VIX positioning into End of September

I don’t really think there’s too much signal here in VIX positioning as it’s how the long/short trade remains hedged for a COR1 to move.

What’s generally interesting about the VIX positioning is it aligns with my view of RV reaching depressed levels before more volatility might surface.

Correlations and Dispersion

This one of the longest stretches where we have remained with elevated dispersion and correlations so low - a game of musical chairs between what mega cap or theme can keep the broader market lifted high.

RV Seasonality

What I mean when I say depressed level before volatility again isn’t we go higher and puke, it’s we go higher, then we see another small bout of volatility up/down. It loosely aligns with RV seasonality - a different way of looking at how the market is volatile month/month.

Tracking RV and identifying when stuff might occur

Signal 1

The 07/08 signal was ok but generally didn’t live up to the average/median stats

Signal 2

This is the one we can forecast can trigger in early August