VHSI Forecast

My plan for 2013 is to provide volatility forecasts for all tradable volatility indexes. VHSI January futures expired yesterday; unfortunately I was out of town and was not able to run forecasts.

My forecast for VHSI to close at 12.98 on February expiration vs 16.10 in VHSI futures. As before, all forecasts are logged in the forecasts tracker spreadsheet.

Week In Volatility

Major volatility indexes were pretty much unchanged from a week ago, while futures declined - which is the normal "decay" behavior for the futures. In Asia VHSI lost 1.86 points from 14.14 to 12.28 and VNKY lost 1.70 points from 23.90 to 22.20.

I'm still working on automating charts for international volatility futures.

Variance Risk Premia in Commodity Markets

There is a lot of research on Variance Risk Premium in equity options, but not a lot about commodities. Which is why I wanted to share an interesting research paper on SSRN - Variance Risk Premia in Commodity Markets, which provides thorough analysis of 21 commodities in 6 categories:

Energy: Crude Oil, Heating Oil, Natural Gas
Grains: Corn, Cotton, Soybeans, Soybean Meal, Soybean Oil, Sugar, Wheat
Livestock: Lean Hogs, Live Cattle
Metals: Copper, Gold, Silver
Tropical: Cocoa, Colombian Coffee, Oats, Orange Juice, Rough Rice
Wood: Lumber

They present statistical findings, as well as forecasting model for VRP based on basis and open interest. I have blogged about VRP of VIX options here. Another excellent overview of the topic is Jared Woodard's ebook Options and the Volatility Risk Premium.

Week In Volatility

How low can we go? US markets up slightly, and volatility indexes declined even further. Around the world volatility indexes were more mixed: VIX fell by 0.9, while VSTOXX in Europe rose 0.31, RTSVX fell 1.03, VHSI up 0.22, and VNKY up 3.75.
P.S. There are dynamic charts below; sometimes not rendered inside google reader but should be visible on the website. Email me if you cannot see the charts.

VIX and VSTOXX February 2013 Forecasts

I used to make monthly forecasts (expiration to expiration) for VIX and VSTOXX levels, but stopped last year as I did not have enough free time. All forecasts were recorded on the blog, and on Forecasts Tracker page. Now I am planning to resume the feature and also add other tradable indexes to forecasts.

My forecast for VIX to settle at 14.09 on February expiration vs futures at 15.95, and VSTOXX to settle at 15.83 vs futures at 17.95 (VSTOXX Expiration is on Feb 13th).

Week In Volatility

I used to review activity in the volatility futures markets and indexes every week. Now that I have more time I decided to update the charts, and write the commentary, but I spent a lot of time just automating the chart generation. Also, international volatility futures - VSTOXX, VNKY, VHSI, and RTSVX are yet to be added. Meanwhile I suggest readers check out a new page on this blog - Volatility Bookshelf, where I recommend the books to read and few to skip. If you have any suggestions, add them in the comments, or send an email.

Blogging in 2013

Last year I did not get to write as much as I wanted to. There were two reasons for this: first, there was not as much innovation in the volatility products, in fast many were delisted, second, I was constrained by time and work non-disclosure agreement from writing about many interesting things in listed options space. Now, that I'm self-employed, I plan to resume blogging more frequently. The plan is to bring back regular analysis of listed volatility products, VIX forecasts and model portfolios like I did in 2011, leveraged and inverse ETFs, and volatility arbitrage. As before my focus will be on providing original research, analysis and concrete ideas, not bloviating on macroeconomics, political analysis, and general hand-waving.

Vance from Six Figure Investing wrote yesterday "The mainstream investing crowd seems to finally be discovering inverse volatility (record volume in XIV today). Some of them at least getting over their obsession of trying to catching the next VIX spike. " I agree with him: it is a pivotal shift in how volatility products are perceived, and 2013 is shaping up to be an exciting year for volatility traders. 

Weekly market report

Wall st delivered a mixed bag of news with VIX, VNKY, and VSTOXX and their underlying markets almost unchanged. VXD - volatility index based...