Tagged: volatility trading

The Epic Divide

Thrilling. Arduous. Rewarding. Draining. Spectacular.

No, not the Federal Reserve Open Market Committee meeting concluding today with a soliloquy before public microphones from the chairman.

We mean our grand cycling adventure riding the Rockies on the high backbone of the fruited plain last week. After 1,500 training miles we clocked several hundred more and about 25,000 vertical feet climbing a collection of the globe’s great mountain passes. The desire accomplished is sweet to the soul (one of my favorite sayings because it reflects the human spirit). Here are Independence Pass, the rim of the Black Canyon of the Gunnison, atop Ute Pass northwest of Silverthorne, and aspens outside Aspen.

Speaking of epic, NIRI this year again reminded me about the divide between how markets work now and – take no offense, it’s just a refrain from IR pros – what most of us know about them.

Here’s a current example. Why were prices and markets swinging wildly Tuesday, with disparity between major measures and extreme moves in stocks? Rational investment? Most of us intuitively know investors aren’t responsible.

What is? Fluctuating currencies, yes (hour-by-hour now). But did you know that VIX futures expire today? Last Thursday and Friday, other options and futures expired, and S&P indexes rebalanced.

Behaviorally, expirations are seismic (we study trading behaviors at a mathematical level) because trading is global, 24-hour, and multi-asset-class. When an instrument like a futures contract expires, there’s a ripple effect. (more…)

Volatility and Small Caps

We’ll spend the bulk of today’s note explaining why small-cap stocks increasingly find their shareholdings dominated by a few large quantitative institutions.

First this on equity markets: Last week we noticed a surge in “volatility trading.” We’ve written before about these tactics that capitalize on volatility as the asset instead of the direction of the markets or a given security.

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