Tag Archives: Volatility
Looking ahead September 12th could be pivotal day for two reasons
Posted on 09. Sep, 2012 by Harvey Sax.
One thing we talk about in our Investment Survival Workshops is learning to develop a horizon further out than tomorrow. I know that sounds obvious but it’s harder to do than you think. Most people including myself, hesitate for a moment to recall what they did yesterday and most of us wake up and think about what we are going to do that day, not the next day or the following week. When I moved from Eastern Standard time to Mountain Standard time zone, I dreaded getting up two hours earlier in the predawn to read the papers and analyst reports. I soon came to the conclusion, though, that if you are worrying about what’s going to happen today, you’re too late already- no matter how early you get up. What’s going to happen today has for the most part been determined in Europe already or prior to that in the Asian markets. No, you need to be worrying about what’s going to happen tomorrow or the following Thursday or some time in the future. With that in mind, I’m worrying about what’s going to happen Wednesday.
1. Apple launch of the new iPhone. Apple will have to hit the ball out of the court . That’s something they have not done since Jobs died. Sales are good and the products shine compared to the competition with one big exception. The hardware, feel, and sex appeal of the new Samsung Galaxy III are greatly superior to the dated series of iPhones now. In fact if Apple doesn’t top it, Galaxy III may be my next smartphone. Apple now represents 5% of the S&p 500 by weighting. It can drag down the index and crush the NASDAQ.
2. Germany’s constitutional court is due to rule on Sept. 12 on whether the euro zone can launch its permanent bailout fund. It will be very bad for the market if they turn this down. This is a real distinct possibility considering that the German press has been slamming Merkel about the recent ECB decision to support Eurozone member bonds in the aftermarket.
The market is deeply overbought to begin with so I think traders should be leery come Tuesday. Wednesday might be a pivotal day. Longer term investors of course won’t be bothered with this noise. They don’t mind watching their portfolios decline 5%. Unfortunately fewer and fewer of those investor are left playing.
Are You Aggressive or Conservative? Better Check Your Beta..
Posted on 10. Feb, 2012 by Wilensky.
By: Harvey Sax
A lot of that depends on the beta of your portfolio. But before we get into all of that, let’s go over just what beta is.
Stock Beta is a ratio that indicates how a stock fluctuates with relation to the market. Beta is an indicator of market risk also called volatility. When you research a stock, look at the beta to get an idea as to how choppy the returns on this stock will be with relation to the market. If this doesn’t align with your risk tolerance, this stock may not be for you.
Here are some guidelines on stock beta and what this number means
A beta of 1: This means this stock is in line with the market. Market usually refers to the S&P 500 group of stocks
Beta of less than 1: This means market fluctuations affect this stock to a lesser degree (utility stocks)
Beta of more than 1: This means this is a volatile stock (technology stocks)
Negative beta: This means that this stock moves in the opposite direction to the market! If the market’s returns are negative, this stock’s returns will be positive! Gold is usually given as an example even though beta shows that though it is less than 1, it isn’t negative.
Zero beta: This means this stock returns have no relation to the market! Cash in your wallet, lottery are good examples
Remember, beta is calculated with past data and this is not necessarily an indicator of future returns!
Different sites show different betas depending upon what timeline was chosen.
A simple and quick way to find out if you are an aggressive or a conservative investor is to find the weighted average of all stock betas in your portfolio.
STEP 1: Look up the beta of your individual stocks. It’s easily found on Yahoo finance or other popular stock market quotation sites
STEP 2: Find the allocation of each stock in relation to your overall portfolio. For example if your overall portfolio value is $10,000 out of which $5,000 comes from Apple stocks, that’s a 50% allocation for AAPL
STEP 3: Multiply the individual stock beta with the allocation percentage. For example the beta for AAPL is 1.38. 1.38 X 50% = 0.69
STEP 4: Add up all the weighted betas to arrive at your portfolio’s beta
Differentiating Between An Irrational Market Or Strong Bull Market Trend?
Posted on 27. Jan, 2012 by Kirk.
Guest post by: Kirk
Differentiating Between An Irrational Market Or Strong Bull Market Trend?
These past two weeks have been tough as an options trader. Differentiating between trading an a possibly irrational market or bull market trend is sometimes very difficult to assess. We all know that the stock market can push us to extremes and then, just when we “give up” and “give in” the turn happens.
Timing is really everything.
Blow-off Top or Pull-Back?
Most traders I talk to are in one of two schools of thought right now. Either you think this is the best shorting opportunity for the next 2 years or you are convinced that we are now in a new bull trend that could take the S&P 500 well above 1,500. It’s pretty much split down the middle honestly.
Whatever camp you are in there are some key stats that are glaring and cannot be brushed under the rug:
1) The VIX closed the week below 20 for the first time since last July.
2) S&P 500 is three standard deviation points above its 20-day moving average.
3) AAII Sentiment is near extreme levels at 47% Bullish compared to 29% Neutral and 23% Bearish.
4) S&P 500 contract short interest has declined nearly 32% – no more short squeeze?
Stick to Your Guns (And Indicators)
Will a top come soon? Maybe (hopefully) but who the heck knows right. I know I have been getting itchy to trade more as I’ve been mostly in cash for nearly a month now. Not that I don’t want to trade, but I think that better risk/reward ratios ratios will come soon and I’d rather have cash on hand to make those trades.
During bull market trend’s like this I find that keeping an eye on the indicators is best. They can and often stay over-bought for weeks but eventually they do break and divergence will be the early warning signals. Look for momentum indicators to drift lower even though the market will continue to move higher.
via Differentiating Between An Irrational Market Or Strong Bull Market Trend? – Option Alpha.
John Paulson’s 2011 Hedge Fund Performance
Posted on 11. Jan, 2012 by Wilensky.
John Paulson’s 2011 Hedge Fund Performance
Despite a rather disastrous mess of 2011, Paulson has managed to keep redemptions down to just 8%.. An impressive achievement nonetheless, but is it due to belief in the strategy or belief in the brand? Either way, his performance is a good illustration of how timing can cause even the soundest convictions to run awry. Don’t forget the importance of a solid hedge when dealing with a timely trade..
The numbers are in for John Paulson’s Paulson & Co. The hedge fund finished 2011 with depressingly low returns reports the New York Times.
Paulson’s Advantage Plus fund finished the year down 52.5%, while its unleveraged Advantage fund fell 36%. Paulson’s other funds did marginally better. Its Recovery fund, which uses a macro strategy, dropped 28% in 2011. Paulson’s credit fund finished the year down 18%. The best performing hedge funds in the Paulson & Co. stable for 2011 were the Paulson Partners fund, which ended the year down 10%, and its gold fund, which lost 10.5% in 2011.Paulson’s problem was a combination of poorly timed bets, like the ones he made on Bank of America (BAC) and Hewlett-Packard (HPQ), and over exposure. After all, Paulson’s Advantage Plus was down 47% through the first nine months of the year. Paulson owned his error, telling shareholders that he made a mistake and should not have been running so exposed without the proper hedges in place – but, then, he over-corrected several positions, missing out on the October raly as a result. For instance, he reduced his position in American Capital (ACAS) the last week of September but the stock’s share price swelled 27.19% during the month of October.
The Week in Resignations.. And It’s Only Wednesday: Urban Outfitters, WebMD, The White House, Swiss National Bank, and Italy
Posted on 11. Jan, 2012 by Wilensky.
Out of the markets and into the midst of both earnings and elections seasons, volatility seems here to stay. Here’s a quick recap of the most recent turnovers in the headlines the past few days, gathered from.. well, everywhere.
Clothing retailer Urban Outfitters Inc. said its Chief Executive Glen Senk resigned:
The company named Chairman and co-founder Richard Hayne as his replacement. Shares of the company fell 12 percent after the bell. They closed at $29.41 on Tuesday on the Nasdaq.via Urban Outfitters CEO resigns | Reuters.
WebMD Chief Executive resigns:
INDIANAPOLIS (AP) — WebMD Health Corp. CEO Wayne T. Gattinella has resigned, and the healthcare information services provider said it stopped talking to potential acquirers about a sale of the company. WebMD also said Tuesday it expects 2012 earnings to be “significantly lower” than in 2011 as it faces tough competition and its drug company customers deal with patent expirations.
White House Chief of Staff William Daley resigns; budget chief Jacob Lew fills post:
White House Chief of Staff William M. Daley resigned Monday, a year after taking the job, shaking up the administration’s senior management just as President Obama gears up for what is expected to be a tough reelection campaign.
Wife’s trades sink banker, resigns:
ZURICH—Swiss National Bank Chairman Philipp Hildebrand resigned Monday after emails appeared to undercut his assertion that he knew nothing of a currency trade worth more than $500,000 by his wife last summer.
Italy minister Carlo Malinconico quits over hotel bill:
Italian junior minister Carlo Malinconico has resigned because of his connections with a businessman now being investigated for corruption.
At least part of his bills were allegedly paid for at a five-star hotel in the Tuscan resort of Il Pellicano in 2007 and 2008, newspaper reports said.
Get Asymmetrical in 2012 – Barrons.com
Posted on 07. Jan, 2012 by Harvey Sax.
Get Asymmetrical in 2012
By STEVEN M. SEARS | MORE ARTICLES BY AUTHOR
Learn to look at the stock market through the options market.
Options are arguably the most sensitive instruments for divining the future of stocks. The smartest stock investors dominate the options market. When they are afraid a stock may fall, they buy puts. When they think a stock will rise, they buy calls. Implied volatility, which reveals their expectations of the future, shows if they expect the stock move sharply, or not.
By dividing an option’s implied volatility by 16 — the square root of the number of trading days in a year — stock investors can get a sense of a stock’s expected movement that is priced into the put or call. The “Rule of 16,” as the exercise is known, will give you a good estimate of the options market’s views.
Options Traders See Higher Volatility Ahead – Barrons.com
Posted on 05. Jan, 2012 by Harvey Sax.
Bracing for a Return of Volatility
By STEVEN M. SEARS | MORE ARTICLES BY AUTHOR
Savvy options traders are taking advantage of the subdued VIX to buy low-cost protection
On Thursday, the stock market sent investors a critical message. If you failed to hear it, you missed information that matters more than the mostly rosy prognostications for the stock market in 2012 from Wall Street banks.
The message: Volatile volatility is back from winter vacation, and likely here to stay for all of 2012.
Even though stocks surged higher on Tuesday, the first day of the trading year, and inched higher on Wednesday, Thursday’s initial decline in response to renewed European jitters and the resulting dollar surge suggest the market remains trapped in a volatility vortex that defined 2011.
via Options Traders See Higher Volatility Ahead – Barrons.com.
Volatility Cuts Hedge Fund Returns – Barrons.com
Posted on 26. Dec, 2011 by Harvey Sax.
Volatility Minces Returns
By BEVERLY GOODMAN | MORE ARTICLES BY AUTHOR
Why John Paulson—and many other hedge fund managers—did so poorly in 2011.
Where have all the stockpickers gone?
Even John Paulson has apologized.
It’s no secret that 2011 was a tough year. But investors who sought refuge in hedge funds—especially those thought to excel in choppy markets—were sorely disappointed. Not to mention none the richer.
As of Nov. 30, the 2,000 hedge funds tracked by Hedge Fund Research are down, on average, 4.5%, trailing the Standard & Poor’s 500 by almost four points. “This is only the third year since 1990 that the hedge-fund index has ended on a decline,” says HFR president Ken Heinz.
Stock Market’s Sharp Swings Grow More Frequent – NYTimes.com
Posted on 12. Sep, 2011 by Harvey Sax.
Market Swings Are Becoming New Standard
By LOUISE STORY and GRAHAM BOWLEY
Published: September 11, 2011
The stock market just can’t seem to make up its mind.
Enlarge This Image
Paul Taggart/Bloomberg News
A trader at the New York Stock Exchange last week, where significant swings were seen almost every day.
Multimedia
Graphic
Era of Higher Stock Volatility
Related
Investors Brace as Europe Crisis Flares Up Again (September 12, 2011)
Renewed Worries About Europe Shake Asian Markets (September 13, 2011)
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Day after day, stocks swing sharply by hundreds of points. Last week they tumbled 3 percent in the first 90 minutes of trading on Tuesday morning, then on Wednesday closed nearly 3 percent higher and dropped almost 3 percent on Friday. All of this on the heels of unusual back-to-back 4 percent leaps and dives in one week in August.
via Stock Market’s Sharp Swings Grow More Frequent – NYTimes.com.
LSE Trading Soars Amid Volatility
Posted on 17. Aug, 2011 by Maxwell Leary.
High levels of volatility in global stock markets last week, triggered by Standard & Poor’s downgrade of U.S. debt and concerns over the euro zone, led to the third-highest number of daily trades at the London Stock Exchange.
There were 1.54 million trades carried out on the LSE on Tuesday, Aug. 9, according to data from the U.K. exchange operator. This amounted to almost three times the average daily trading volume so far this year, which had been around 642,000 trades per day to the end of July.
Full article available @:
Trading Strategy in Volatile Markets
Posted on 16. Aug, 2011 by Live Trading News.
Be cool and do not let this volatility spoil the long term investment plan
If you listen to the financial noise in the main stream media you have heard and read lots of opinions about the state of the US, EU, and Global economy.
The evidence suggests GDP growth is slowing, despite government stimulus, and many governments are running out of options given their high debt to GDP levels and record low interest rate policies.
But, corporate profits and liquidity are very high, and many companies are beat analyst expectations. So while governments may be struggling, many companies are doing quite well .
Until very recently things were moving along steadily in the stock market. Capital has a way of seeking out growth.
It does not take a savvy player/investor long to grasp that a 10 yr Treasury yielding about the same as the S&P 500, around 2.2% is not a great deal.
The huge amount of Capital also has to go somewhere, and despite volatility, stocks are the best option IMO.
ETFs and high frequency trading makes it difficult for retail, and for most professional)investors to accurately predict the short-term movements of the market.
This difficulty is especially true for small cap investors.
For most investors it is best not to get caught up in the market’s daily fluctuations since fundamentals are clearly not driving price action. This is not easy to do, but a must.
But stock corrections are a process, Violent corrections, like the one we have seen over the past month or so, now happen fast, too fast for most investors to capture quick gainers.
To try to time the Up/Down/Up action in a Bull Market correction often leads to too much buying of companies that will still go down, and too much selling of positions that are likely to go up.
That said it is important that players/investors set a simple course and strategy during violent stock market action and do not try to get too “smart.”
A good and solid program is to buy attractive growth companies at reasonable valuations with significant exposure to Global growth trends.
Book gains on some winners along the way, cut some losers, and work to outperform the overall market.
This strategy in this the recent market action is a time to average into more shares of the good stocks, there are many of them, and you can do that if the money is not scared money or money needed to live on. For most people it is better to be an investor, and not a trader.
And when more capital is wanted or needed for a Special Situation positions that hold less conviction can be sold to buy into a better opportunity. Remember it is your money and your responsibility and the name of the game is to make money.
Paul A. Ebeling, Jnr.
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
A Wild Ride to Profits
Posted on 16. Aug, 2011 by Maxwell Leary.
The stock market’s recent wild swings have unsettled many investors, but they have led to record profits for high-frequency traders following months of disappointing returns, industry analysts and money managers said.
Some traders interrupted August vacations to return to their computers amid the global panic that triggered steep market selloffs, sharp upward swings and then more selling.
Traders don’t know how long the extreme volatility and elevated trading volumes will last—but they don’t want to miss out, said investors and Wall Street trade-execution managers.
Full article provided by WSJ @:
Just Another Manic Monday?
Posted on 17. May, 2011 by Pension Pulse.
On Monday, I hooked up for lunch with someone who works at a successful Montreal hedge fund. He complimented me on my blog and then we started talking about alpha talent in Quebec. There are some exceptional hedge fund managers in this province that are being totally ignored by Quebec’s large institutions (for God knows what reason!). I would like all the global funds that read my blog to contact me (LKolivakis@gmail.com) and I’ll be glad to share more information on our alpha talent in Quebec. Many managers have worked in London, New York, Chicago and decided to move back to Montreal for personal reasons. I want to support them as much as possible because Montreal’s hedge fund community is small but offers tremendous potential. I want Montreal to become the fastest growing hedge fund center and will do everything I can to support our talented alpha managers.
The person who I had lunch with today introduced me to another person who is in the process of starting a relative value commodity fund. I spoke with this manager late this afternoon and was blown away by how sharp this guy is. Unlike most commodity fund managers who mostly trade front end oil futures, this manager and his small team have years of experience trading all commodities, including energy, metals, corn, sugar, and other soft commodities.
We had a great discussion on the financial crisis. Like me, he was extremely bearish back in 2006. I told him I was researching all these complex CDO-squared and CDO- (more…)
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