Anything about XJO

[Fox]

I have a lot of questions which are XJO specific, and thought of putting this thread together for those sharing an interest in XJO. The first question I have is regarding XJO historical volatility.

The graph below is the 30 day HV of XJO going back almost 4 years, which I obtained using the Hoadley tool. My understanding is that HV's are mean reverting. The problem of course is determining what the mean should be. The mean will vary depending on how far back in time you look.

My opinion is that the peaks before March 08 and before Dec 08 can be discounted as extra-ordinary events ie. black swans. Ignoring those two peaks, HV lies somewhere between 8% to 30%. From visual inspection, I would probably call 15% as the mean HV.

It would be great to hear the opinion of others. There's probably no right answer, but the more opinion we have, the more we can think/consider, before coming to our own conclusions. So, what do you think the mean HV is?

 

[cutz]

Hi Fox,

For the seven year period up to the peak of the last bull market 20 period HV average of 10.5, some periods of around 6.

Year 2001 to present, 20 period HV average of 14.5.

My opinion only using excel spreadsheet so may not be totally accurate.

Stuffed if i know how to make money when Vol returns to those extreme lows.

 

[Fox]

Stuffed if i know how to make money when Vol returns to those extreme lows.

If we take the view that HV will revert to the mean of around 10%, that means that there is still time to take advantage of short vega positions. So, that to me is a good thing.

However, I really don't know what to make of XJO's vol in the next 30 days. For a while, I thought that HV was possibly going up as IV was doing just that. My gut feel is that it will stay at its current range of 18% to 20%. I can't see the HV reverting to the 10% mark in the next 30 days. Of course all this is just gut feel and not based on any fancy vol forecaster.

Is that how others see it as well?

 

[cutz]

20 period HV

Actually folks, please read that as 20 day HV, to late to change it.

Fox,

I reckon volatility may kick up again, i don't think we're out of the woods yet. Bad news stories are flowing back in again, our big four banks which make up a huge chunk of the ASX200 have a lot of interest tied up in our property market which is starting to look like a bubble, personally i prefer to be slightly long volatility.

Gut feel with me also, who knows how things will pan out.

 

[beerwm]

not sure if this thread is restricted to options [ cause i dont really follow them ]

My thinking is volitilty will mirror that of 2003-2007, unless we see some significant selling, which history shows pushes up volitility

 

[Grinder]

Hey guys,

Trying to predict HV is'nt too disimmilar to making a prediction on anything really, find it can be alittle more forgiving then trying to pick direction but ultimately it's the same thing. Thus, I give it it's due respect but prefer to focus on short term IV and balance out my positions accordingly.

My above is not XJO specific but it can be.

 

[Fox]

My thinking is volitilty will mirror that of 2003-2007, unless we see some significant selling, which history shows pushes up volitility

Hi beerwm,

We have not seen two consecutive years of negative growth of the ASX index since the great depression if I'm not mistaken. I can understand your optimism that we will see a repeat of 2003-2007 from now onwards.

Your chart is interesting in that shows historical volatility as a ratio. The numerator of the ratio is the 20 day HV I assume. What is the denominator of the ratio? Is it the average HV?

Also what is the difference between the calculation of fast vs. slow volatility ratios?

Fox

 

[cutz]

Hi Fox,

With regard to making money when volatility returns to extreme lows my concern is there have been long periods in history where IV just bounces around 6-8%. With those sort of figures and having a view that vol will stay where it is positive theta will be fairy low when selling premium (limited risk premium).

 

[wayneL]

A better question is how future HV projection measures against current IV.

Low realized volatility is not a problem if you get paid for the risk of HV possibly increasing. Plus you can bet on an increase in vols via horizontal/diagonal strategies.

 

[Grinder]

A better question is how future HV projection measures against current IV.

Low realized volatility is not a problem if you get paid for the risk of HV possibly increasing. Plus you can bet on an increase in vols via horizontal/diagonal strategies.

Exactly; and no reason why you can't hedge some short vegas if you have'nt a clue what it will do.

 

[Fox]

A better question is how future HV projection measures against current IV.

I propose a competition to pick future HV ie. the 30 day HV for XJO as calculated using Hoadley for the period ending 17 Dec 2009. There will be no prize money as your trades should reward you handsomely. The winner will be bestowed the title Soothsayer Of The Month.

Winning 3 consecutive titles will entitle you to be Master Soothsayer. Winning 4 consecutive Master Soothsayer titles will grant you the honour of being Grand Master Soothsayer. The rest of us will crouch in submission as you walk past, shielding our eyes from the radiance of your super natural abilities.

Entries close this weekend.

My entry for the competition is 20.5% based on my belief that future HV will remain unchanged from current HV levels.

 

[cutz]

Hi guy's,

An interesting phenomena i been observing recently is the creeping up of XJO quotes (IV) after 4.10pm even with a steady index. OK if you're selling i guess but who wants to wait around till after the market closes.

Any ideas on why this happens ?

BTW Fox, my prediction, XJO 20 day HV 30% by Christmas, wishful thinking perhaps.

 

[skyQuake]

Hi guy's,

An interesting phenomena i been observing recently is the creeping up of XJO quotes (IV) after 4.10pm even with a steady index. OK if you're selling i guess but who wants to wait around till after the market closes.

Any ideas on why this happens ?

BTW Fox, my prediction, XJO 20 day HV 30% by Christmas, wishful thinking perhaps.

Probably delta rather than IV cause the SPI is still open? Does this occur with stocks too?

 

[cutz]

Good point skyQuake,

Something i overlooked, and yep there was a selloff on the SPI at ~4.15pm ( don't have to tell you that ) which i didn't notice, causing the puts to increase in value.

Doesn't happen to the equity options because the quotes are pulled at 4.00pm.

Thanks mate.

 

[Fox]

BTW Fox, my prediction, XJO 20 day HV 30% by Christmas, wishful thinking perhaps.
...

Oh! Looks like I've got some competition. I was thinking that I was going to win by default. So, it's my 20.5% vs your 30% .

Something i overlooked, and yep there was a selloff on the SPI at ~4.15pm ...

Can I get some help understanding this? When you say SPI, I presume you mean the SPI futures traded on the SFE? So, if MMs observe at 4.15pm that the December SFE SPI futures were down, MMs would quote the XJO puts at a higher price. Is that what you think happened?

Also, I did not realise MMs quoted at that time ie. after 4.00pm. I must have a closer look tomorrow to see when MMs stop quoting for the day.

 

[cutz]

Hi Fox,

MM's use SPI contracts to hedge XJO options, the day session trades till 4.30pm hence you'll see XJO option quotes on till this time.

And yep you're correct these are SFE traded SPI futures.

Oh! Looks like I've got some competition. I was thinking that I was going to win by default. So, it's my 20.5% vs your 30% .

Yep,

Got a serious gut feel on this, could be a signal that there will be a volatility collapse.

 

[Grinder]

can't let it be a 2 horse race. Put me in for 18. Not worth anything though, don't trade XJO anymore & if I did would be worth even less.

 

[Fox]

can't let it be a 2 horse race. Put me in for 18.

The Soothsayer of the Month title gets more elusive and prestigious . Is this the Shocking equivalent of our little Melbourne Cup?

Cutz, the competition is for 30 day HV on 17 Dec 2009 (see post #11). Your entry is "XJO 20 day HV 30% by Christmas". Do you still want to maintain your entry at 30% for 30 day HV by 17 Dec 2009?

Summary to date:
Grinder 18%
Cutz 30% (30 day HV by 17 Dec 2009?)
Fox 20.5%

Remember, entries close this weekend.

 

[Fox]

Can I get the XJO experts help on this?

The attached diagram is a snapshot of Interactive Brokers TWS platform 1 hour before market opens.

1. Why is AP 4 points down before the market has even opened? The contract info shows that AP is the S&P/ASX 200 Index. If this is the case, why should the figure even be available before market opens?
2. Could AP be the SPI futures index? If this is the case, how is this index determined? Is it determined by using the Dec SPI futures contract of 4755 and then discounting the cost of carry, which then gives you 4730?

Thanks.

 

[skyQuake]

Can I get the XJO experts help on this?

The attached diagram is a snapshot of Interactive Brokers TWS platform 1 hour before market opens.

1. Why is AP 4 points down before the market has even opened? The contract info shows that AP is the S&P/ASX 200 Index. If this is the case, why should the figure even be available before market opens?
2. Could AP be the SPI futures index? If this is the case, how is this index determined? Is it determined by using the Dec SPI futures contract of 4755 and then discounting the cost of carry, which then gives you 4730?

Thanks.

APSPOT = SPI futs. Don't know what IB has AP, SPI and XJO.
Imo the AP you're seeing is just the matching price.
What is AP showing now?

As of 11:15:30
SPI = 4775
XJO = 4763


And put me down for 15%