hey CF, thanks for using the mq data :) one thing i want to add because you also mention realized vol. there are a few investment vehicles like risk parity funds sensible to vol. so if realized vol short term is higher then long term (1month vs 3month for instance), they wont play risk on, and this is liquidity missing in the market. great read as usual!
“The main idea here is that many times shifts in implied vol correlations or outright spreads (functionally the value of vol subtracted from one another as opposed to a correlation based on % change) set the conditions for changes in correlation in the spot market.”
Can you explain the intuition behind that? Is it because the correlation between spot stocks and bonds is a function of growth surprise, inflation surprise and their interaction, and VIX and MOVE are exactly forward looking metrics that reflect how people are pricing in surprises in 30d?
Hi there, is there an example or description on how the implied vol premium or discount is used when we overlay it against price action? I'd assume that if we are at a premium, then it would "pay" to hold the asset and vv for discount.
hey CF, thanks for using the mq data :) one thing i want to add because you also mention realized vol. there are a few investment vehicles like risk parity funds sensible to vol. so if realized vol short term is higher then long term (1month vs 3month for instance), they wont play risk on, and this is liquidity missing in the market. great read as usual!
position dn
Thank you Flows
“The main idea here is that many times shifts in implied vol correlations or outright spreads (functionally the value of vol subtracted from one another as opposed to a correlation based on % change) set the conditions for changes in correlation in the spot market.”
Can you explain the intuition behind that? Is it because the correlation between spot stocks and bonds is a function of growth surprise, inflation surprise and their interaction, and VIX and MOVE are exactly forward looking metrics that reflect how people are pricing in surprises in 30d?
The idea is that the spread in the value of the asset and correlation between % change are different and you want to map both against all variables
Thanks, Cap!
Hi there, is there an example or description on how the implied vol premium or discount is used when we overlay it against price action? I'd assume that if we are at a premium, then it would "pay" to hold the asset and vv for discount.
It’s the price you pay to positioning to extract returns
So if an asset is at a volatility premium it doesn’t necessarily mean go long or be long?