USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (4/30/16)

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USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (4/30/16)

To see the origin of this series click here

In the paper that inspired this series "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?" the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio.

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COMPOSITE MACRO ETF WEEKLY ANALYTICS (4/30/2016)

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COMPOSITE MACRO ETF WEEKLY ANALYTICS (4/30/2016)

NOTABLE OBSERVATIONS AND TRENDS:

  • The explosive performance of the Precious Metals Miners (PMM) and Precious Metals (PM) composites this year makes me consider that market participants are expecting "unexpected" inflation.
  • The "unexpected" inflation theory is supported by the outperformance of the Oil/Gas and Energy composites over the L/63, L/21, and L/10 trading days.
  • Composite performance over the L/63 trading days is intriguing. It is the only time frame in which none of the composites had negative performance.
  • I still find it somewhat surprising that the Correlation Clustermap (Dendrogram) shows that T-Bonds, PMM, PM are closely correlated with each other offering diversification vs the other composites from the L/126 days onwards. 
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USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (4/24/16)

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USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (4/24/16)

To see the origin of this series click here

In the paper that inspired this series "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?" the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio.

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Exploring the Relationship Between SPY and TLT

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Exploring the Relationship Between SPY and TLT

In this post I examine the relationship between the SPY and TLT ETFs. This can be considered Part 2.5 of my series exploring the 2-Asset Leveraged ETF portfolio of UPRO and TMF. Thus far I've posted results of the strategy using two implementations: "Inverse Risk-Parity" and "Risk-Parity". I've also covered some key concepts behind investing in leveraged ETFs including convexity, and beta-slippage/decay. Now we can explore the strengths and weaknesses of the strategy.

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USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (4/17/16)

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USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (4/17/16)

To see the origin of this series click here

In the paper that inspired this series "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?" the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio.

Read More