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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: William who wrote (83792)	5/2/2003 3:20:43 PM
From: Jon Tara	Read Replies (1) \| Respond to of 99985

William, with tounge in cheek, I was trying to point-out that the bubble was a period of high volatility, and that I would expect that we should, indeed, now start seeing lower volatilities. An interesting historical note that will help de-fog any really long-term historical data you come across... implied volatilities were quite high at the onset of listed option trading (early 70s?) and they came down as traders become more familiar with the product. While there seems to be an inverse relationship between implied volatility and price in the short term (that is, within the range swings of the VIX) that relatinship doesn't bear out over the long term average. When you look at the long term, you can really see the correlation between a higher VIX and the bubble top. Not to say that there is a positive correlation with the long-term average. Not at all. Just saying that the long-term average shows a rough correlation with - well, surprise, surprise... volatility! While, in the shorter term, there is the somewhat counnter-intuitive inverse correlation with price. BTW, I am long July 30 QQQ puts from last week. Probably jumped the gun. I will probably add to my position when the stoch and MACD of the VXN crosses over. The VXN is showing very "oversold" and is due for a bounce, IMO. Over recent history, at least, this is a good bet. The MACD of the VXN generally crosses over a few days after a local QQQ peak. The last two major crossovers were 8/28 and 1/16. A short position entered on either date would have brought a nice return.