I thought it might be interesting to post a weekly volatility repert on the US indicies to see if we can spot any option trading opportunities. So here it is:
This report is for the week ending 7 July 2006.
The Volatility Report seeks to examine the volatility present in the Major US indicies for to see if there are trading opportunities on the basis of statistical and option Implied Volatilities.
I donít seek to offer any comprehensive technical analysis or any attempt to pick direction in the market apart from that which may be suggested by volatility. There are already hundreds of resources for that sort of analysis. I am looking at a range of statistical and implied volatility measures which are detailed in the links on the left.
Lets first have a look at the S&P 500 price chart.
Only a 4 day week because of Independence day, the S&P didnít do a lot after the rally last week, but finished off with a down day on Friday. We are still above the 200 DMA but below the 50 DMA; so no clear trend present.
Having a look at the statistical volatilities (see this link for explanation of the indicator http://thevolatilityreport.com/volbl.../?page_id=16);
we can see that 30 day SV is right up at yearly highs and > 2 standard deviations from 260 day SV benchmark. This market, despite the quiet week,is still very statistically volatile. Even the 6 day measure is up around 15%. This is quite clearly abnormally high and we could reasonably expect SV to start topping out and in fact settle down towards the benchmark figure at some stage. If we have another week like this one, that will be realised.
Now looking at the SV/IV chart:
The Implied Volatility of the SPX having peaked at nearly 20% in mid June (signaling a potential bottom) has already settled below SV and is currently just over 12%. This is telling us a lot of fear has come out of this market. This doesnít necessarily mean a rally, just that the market is expecting more normal volatility. No crash for now