Posted by: jhamon | November 2, 2009

MysteryHedgie on Managing Risk

VIX, the “price of risk”…why has it risen 53.6% (see below) since the 10/21 equity peak, when SPX has declined a mere 5.9%? We think it has less to do with actual price risk (30 day realized SPX volatility is 20.45 vs. VIX at 30.69; similar relationships are observed in FX/FX options (UUP))…and more to do with an anticipation that illiquid market conditions begin earlier this year than the usual mid December time frame. We saw several smaller strategies, all solidly profitable and above High Water, close their books last week; Galleon’s unwind and the gate lifting at a well known multi-strat focus many on “business over investment” decisions.

To remain with your convictions, consider collars (buy put/sell call) as a low/no cost way to stay invested as the correction continues.

Spike in the VIX

Spike in the VIX

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Responses

  1. I highly enjoyed reading this post, keep on creating such interesting posts!


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