Volatility Tracker: Options Fairly Priced

Volatility Tracker for the week of February 1, 2010

This week saw realized volatility rise to meet last week's spike in implied levels, although as I mentioned those spot implied levels weren't easily sustainable. [2] I'm not the world's greatest proponent of technical analysis, but the price charts for equities and oil deserve a look. Failure to revert toward recent averages would be further confirmation of the ill health of this market. [4,15]

With a less than one-point range over the past two weeks, the VIX futures term structure has only been this flat three times in the past year, and never two weeks in a row.[7] The relationship between current implied and recent realized volatility is such that options look fairly priced which, again, hasn't been the case since early 2009. [6,8]

It may be worth considering some long gamma exposure to gold at these levels. [11,13]

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