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Raleigh Durham Open Stocks Futures FX Options Traders Meetup Message Board Trading Discussions › The perils of selling volatility

The perils of selling volatility

Dr. Jose' R.
Skeptic
Cary, NC
Post #: 689
And more comments on the the book "Volatility Trading (Wiley Trading) by Euan Sinclair" on the Wilmott forum of quants:

http://www.wilmott.co...­

PS: when reading comments by "filthy" in NuclearPhynance and in the WIlmott forum take into account that this "may" (?) be a moniker for the author of the book, judging by comments like the following:
Sat Sep 13, 08 08:55 PM

Sat Sep 13, 08 08:55 PM
yeah of course you are right.

a writer should never blame anyone or anything else for these errors but, as you know, writing a book is a long process. drafts get mixed up. mistakes are inevitable.

however i'm always grateful for proof readers if you have any interest.

Dr. Jose' R.
Skeptic
Cary, NC
Post #: 691
For those that do not get volatility measures from their brokers or cannot compute them by themselves, try for example the following websites (in the free version): http://www.ivolatilit...­

and/or:

http://www.schaeffers...­

PS: 1) take their "alternative" or proprietary measures of historical volatility with a grain of salt... 2) do not use any measure that you do not understand smile
Don B.
DonBrady
Group Organizer
Cary, NC
Post #: 1,022
And more comments on the the book "Volatility Trading (Wiley Trading) by Euan Sinclair" on the Wilmott forum of quants:

http://www.wilmott.co...­

PS: when reading comments by "filthy" in NuclearPhynance and in the WIlmott forum take into account that this "may" (?) be a moniker for the author of the book, judging by comments like the following:
Sat Sep 13, 08 08:55 PM

Sat Sep 13, 08 08:55 PM
yeah of course you are right.

a writer should never blame anyone or anything else for these errors but, as you know, writing a book is a long process. drafts get mixed up. mistakes are inevitable.

however i'm always grateful for proof readers if you have any interest.


Thanks I will check all of those out. and try to read through the book bearing them in mind.....
Dr. Jose' R.
Skeptic
Cary, NC
Post #: 692
For those interested in looking at this book "Volatility Trading (Wiley Trading) by Euan Sinclair": you may also access Google Books, where you can see a number of its pages and the table of contents: (click here) http://books.google.c...­

(Presently, at the time of this writing, Google Books shows some pages not shown by Amazon and vice versa, Amazon shows some pages not shown by Google Books).
Don B.
DonBrady
Group Organizer
Cary, NC
Post #: 1,023
.......
5) QUESTION: Does anybody know IF (and if so how) one can track the amount of leverage in the market versus time? (for example, the amount of margin used by large traders in the market)?

Here is an article that reports on that:

http://allstarcharts....­

based on

http://blogs.wsj.com/...­ (may require subscription)

See also
http://www.nyse.com/f...­

which does link to margin debt statistics.

Dr. Jose' R.
Skeptic
Cary, NC
Post #: 693
Thanks Don. The articles from allstarcharts and from wsj are based on proprietary data from Bank of America Merrill Lynch. To conclude whether the data is useful and whether it is presently optimistic or pessimistic one would need to conduct a historical study, and hence one needs historical tabulated data.

This is what makes the NYSE data you uncovered so useful: it is freely available and it contains plenty of historical data going all the way back to 1959, so that we can plot it and draw our own conclusions. Finra also has a website with similar information (but going back to only 1997): http://www.finra.org/...­.

Unfortunately both the NYSE and Finra data are stale (last information is for August 2012, more than a month and a half ago). Is it possible to get more up-to-date Margin data? (to be actionable for trading purposes, otherwise if the data is delayed by more than a month and a half, it maybe only interesting for academic purposes). If the general public can only get stale margin data, this maybe another case where institutional traders have quite an advantage over individual traders.
Don B.
DonBrady
Group Organizer
Cary, NC
Post #: 1,024
I could not find more current data but find another source:

http://www.federalres...­

It is at least partly redundant to the others.

Here is another article.

http://www.ritholtz.c...­

It refers to a "one month lag" but does not list the source.

Don B.
DonBrady
Group Organizer
Cary, NC
Post #: 1,032
Here is another article on Margin Debt.

http://www.zerohedge....­
Dr. Jose' R.
Skeptic
Cary, NC
Post #: 697
Thank you Don for the great link to the NYSE margin data (http://www.nyse.com/f...­, which I found very useful, as well as the other articles. I took the time to plot (on a logarithmic scale) the data from the NYSE, and I annotated various peaks and troughs:

http://files.meetup.c...­



Not surprisingly zerohedge (http://www.zerohedge....­) is somewhat exaggerating the importance of this most recent peak

(ZeroHedge 11/07/2012 13:46 -0500) As can be seen on the table below, Margin Debt as of 9/30 hit $315 billion: a jump of $30 billion from the prior month, and the highest since March 2011

Looking at my graph (at the top of this reply), when properly plotted on a logarithmic scale, the recent 9/30/12 $315 billion "peak" is a relatively small bump, and nothing compared with the peaks that preceded large market crashes. Not really a big deal when seen in the proper (long-term logarithmic) context.
Dr. Jose' R.
Skeptic
Cary, NC
Post #: 699
I started a new thread titled "Leverage (Margin Debt) as a predictor of major turning points in the market" to make it easier to find this topic under "Leverage (Margin Debt)" rather than being buried in a thread under "selling volatility"
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