We have traded derivatives for many years, read many volatility reports and attended multiple options presentations. This is the absolutely most unique visual and the "coolest" presentation of volatility we have seen over the past fifteen years. Great work by Chris Cole at Artemis Capital Management. For his last must read report click here, but before that, we urge you to watch the video presentation below.
“Nobody will deny there is roughness everywhere….” Benoit Mandelbrot
The movement of stock prices has been an obsession for generations of speculators and traders. On a higher level mathematicians believe that modern markets are an extension of the same fractal beauty found in nature. Visualized these stock markets may take the shape of a turbulent ocean with waves made of human hopes, dreams, greed, and fear.
“Volatility at World’s End” Two Decades of Movement in Markets
is a depiction of real stock market volatility using trading data from 1990 to 2011. The visuals are designed from S&P 500 index option data replicating the implied volatility wave (or variance swap curve) extending to an expiration of one year. The front of the volatility wave contains the same data used to calculate the CBOE VIX index. The movement of this wave demonstrates changing trader expectations of the future stock market volatility. As the wave moves through time the expected (or implied) volatility surface transforms into a realized volatility surface derived from historical S&P 500 index movement. The transition represents what professional traders call “volatility arbitrage”. The color variation in the volatility waves show the volatility -of-volatility or internal movement of the wave. The track underneath the volatility wave represents underlying S&P 500 index prices.
Video click here.