I will be Teaching a class on “Volatility Trading” in London December 5-6, 2013

Volatility Trading

The growth of pure volatility trading has exploded over the past decade, primarily driven by substantial volume growth in publicly traded products based on the CBOE Volatility Index (VIX) Index. This two-day course provides the necessary tools for investors to effectively measure, interpret, and manage volatility. From volatility as a risk measure to Risk-On/Risk-Off (RORO) as an investment strategy, the mathematical concepts of volatility will be covered in a visual and easy to comprehend format. Topics include option valuation, volatility surfaces, and trading options. Asset volatility, variance swaps and the VIX will be covered in detail, leading to a discussion of the unique properties of the various tradable pure volatility products.

December 5 to December 6, 2013
Duration: Two days (9.00am to 5.00pm)
Location: Apex City of London Hotel – London, UK
Trainer: Michael McCarty
Course fee: £1890 + VAT – Register online

Course Outline

Risk and Volatility

+ Normal Distributions, Volatility and Variance
+ Volatility in the investment world: Batchelier to Samuelson
+ A marriage of convenience: MPT, Efficient Markets and Options Theory
+ The return of “Animal Spirits”, the Behavioralists and non-normal distributions

Trading Volatility Old School: The Volatility of an Option

+ Strikes, Models and Greeks
+ Volatility in 3-dimensions: The volatility surface

Trading Volatility New School: The Volatility of an Asset

+ Negative Correlation of Asset Returns and Asset Volatility
+ At the Money volatility and the First VIX – a portion of the surface
+ The Variance Swap – A slice of the surface
+ The “New” VIX calculation – the publicly traded slice

Tradable Volatility Securities Markets

+ The “Strip” and VIX Settlement
+ VIX Futures
+ VIX Options
+ Volatility Exchange Traded Products
+ Over-the-counter Products

Properties of Volatility

+ Behavior of volatility over time
+ Informational Content of Volatility: realized and implied
+ Volatility and Correlation

Trading Volatility: Risk-on/Risk-Off

+ RORO in Mean Variance Space
+ RORO in the MPT World
+ RORO with options
+ RORO with volatility products

Hot Topics in the “Vol” World

+ Volatility, Interest Rates and the VIX futures forward curve
+ The elephant in the room, how ETP’s trading effects volatility markets
+ Bloomberg Terminal Volatility Functions
+ Risk Parity Portfolios
+ Risk Neutral Density Functions

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A quick look at SPX 20-day Realized Volatility since 1950

With the measure of 20-day S&p 500 (SPX) Index realized volatility having fallen to 6.35% Thursday before finishing the week at 6.44%, the lowest reading since February 1, 2013’s reading of 5.41%, we thought it might be worthwhile to look at exactly how often the measure of equity market volatility registered even lower readings and in the process look at the actual distribution of this risk measure.

First the table:

SPX 20d RV since 1950

 Sources: Yahoo Finance, Differential Research LLC

Since 1950, 20-day realized volatility for the S&P 500 (SPX) Index has been at or below 6.50% a total of 9.42% of the time. The range of observations for the entire period extends from a low of 2.32% recorded on February 4, 1965 to a high of 94.14% calculated for the 20-day period ending November 12, 1987. While 50% of the observations are below the median of 11.14%, the right-tail observations lift the mean or average for the period to 12.95%.

SPX 20day realized since 1950 chart 1

Sources: Yahoo Finance, Differential Research LLC

data sources: CFE, Trade-Alert LLC, Yahoo Finance and Differential Research LLC

The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

Digiprove sealCopyright secured by Digiprove © 2013 Michael Mccarty