Chart of the Day

We would like to welcome Michael McCarty is the founding member and chief strategist of Differential Research, an independent provider of derivative research for institutional investors.

Mr. McCarty is a frequent guest on Bloomberg TV, Fox Business News and CNBC, in addition to being quoted regularly by the financial press. Mr. McCarty also speaks frequently on the topics of risk and volatility at investment industry conferences.

Michael was formerly Chief Strategist at Meridian Equity Partners, an independent broker dealer. As director of the firm’s Option Market Operations, Michael published two widely-read notes per day, targeting on the US marketplace and uncovering Noteworthy Option Activity

Born in the Republic of Panama and raised in Central Florida, Mr. McCarty’s fascination with the financial markets came early on, first studying finance and history at Emory University, then obtaining a Masters Degree in Finance from New York City’s Baruch College – Zicklin School of Business. His vast knowledge and deep understanding of the equity and derivative markets, the result of a twenty-five year Wall Street career as sales-trader, analyst and market strategist has allowed him to accumulate a significant following of the most respected and accomplished investors worldwide.

He now lives in Austin, Texas. Welcome Michael!

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While implied volatility for the US Equity Market, as measured by the CBOE Volatility Index® (VIX®), failed to approach the levels reached during the financial crisis, 20-day realized volatility for the VIX last week surpassed levels witnessed during the financial crisis reaching the highest level since 1990 when data for the “new” VIX is first available.

 

With the VIX rising to 48.00 during the period, 20-day realized volatility for the period ending September 29, 2012 set a new record of 277% surpassing both the financial crisis high of 240% set October 24, 2008 and the record 262% set during the “Flash-Crash” May 24, 2010.


Accepting that our data set is limited and that the nature of trading volatility has matured as products have been introduced and developed, the relationship between VIX Index volatility and the level of the VIX seems to be still developing. A consideration not to be ignored by VIX options traders.

 

While the belief that both the VIX Index and VIX Index volatility are positively correlated, would seem to be confirmed visually, the magnitude of the change in realized VIX volatility does not seem to be dependent on the  level of the VIX during the period or the associated peak in the VIX.

 

Interestingly, the record for the VIX since 1990 of 80.86 actually occurred several days after 20-day realized volatility for the VIX peaked.

data sources: CBOE, Differential Research, LLC