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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: CalculatedRisk who wrote (28189)3/8/2005 11:30:05 PM
From: LLCF  Read Replies (1) of 110194
 
<Faber's charts are interesting, but I urge caution using implied volatility as a market signal. Historically it is not a reliable indicator of a top. That chart shows low implied volatility in '94 and I was one of the few bulls around. >

Agreed... I've been in derivatives all my life, and used to use it only in the sense that it {IVOL} was a buy when it got low enough...and to some extent to predict some move, normally it {low Vol} was correlated to a bull move. But that was then, and {I believe} this is now, All I'm saying is it makes it cheaper to take a shot on the big one, which I expect for entirely different reasons.

<I'm not buying any puts or shorting until the story changes in some fundamental way. Otherwise you end up frequently just fighting the tape.>

I hear you... I"ve got plenty of dough in the "poot graveyard" over the past couple years... although I'm up overall rather large {I don't bet big with premium} with the other 2 legs of my triad {short $US, long commodities}. That said when one says "fundamental story" IMO you have to realize that the fundamental story is:

""The global economy is going to implode and the stock market is denying that fact simply because everyone keeps putting their money there because that's what one does with money. Therefore 'fighting the tape' really means going against those people who are destined to get killed eventually."

The other thing to remember which IMO is WAY UNDERRATED is that like an earthquake... you can't buy insurance once it starts, and no one is going to rebuild it for free. So there is a chance that those waiting for the tape to change may never be short. You COULD see the 1200 S&P at 1000 in a day or two. A GAP is the ONLY reason to buy pooots... you don't buy poots because you think the market is going lower, you buy them because you think it may GAP LOWER.

DAK
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