Volatility Tracker for the Week of July 6, 2009

Volatility Tracker for July 6, 2009

The mean reversion in volatility that many of us have been looking for finally started to kick in last week. [2] Additionally, the VIX Premium Ratio [8], while slightly off its 52-week highs, still registers as extreme; historically, short term (30 day) implied volatility has tended to rise in such situations. My short-term S&P 500 implied volatility bias is positive, and will likely remain so over the coming weeks for seasonal reasons.

A rise in implied volatility does not necessarily entail a fall in stock prices. At the moment, S&P 500 price movement lacks a clear direction [4], and the index has been less volatile over the past month than had been assumed by option premiums. [6] That relationship has shown no sign of subsiding, and until it does, it may pay to be a net seller of options over the short term.

Short-term S&P 500 Implied Volatility Bias: Positive

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