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Does binary options trading signals work lyrics
On May 8 this year, the Vix marked a long-term low at a level of 9. Volatility levels of various asset classes have been declining. This may seem surprising at first, in light of the current situation:. What this indicates is there are enough reasons to justify high volatility. Therefore, there must also be reasons for the markets' current calmness: Market participants have become accustomed to central banks' interventions once markets start shaking too much.
Therefore any rise in volatility is immediately stifled by additionally injected liquidity. This rarely triggers short-term peaks in volatility. Recession and market turbulence are common associations in the context of volatility. Paradoxically, many market participants become nervous just when the very indicator of market nervousness — market volatility — trades on extremely low levels.
There are two reasons for this juxtaposition: This might be dangerous, as a minor crisis could be enough to trigger panic. Second, historically market crashes have been preceded by low-volatility environments. We have a different view here. In our opinion, equity-volatility levels fall in relation to the time that has passed since the last recession. However, volatility does not serve as a lead indicator, as it regularly starts increasing only when the market is already in decline.
There are doubts concerning the explanatory power of common volatility indices, as they measure the implied volatility. Nonetheless, a comparison between historical volatility and implied volatility shows very similar patterns.
While there may be different theories on low volatility, in practice it looks straight forward: This has been going on at such a pace, that this investment strategy has found more and more imitators. One style in particular seems very popular: As direct investments in volatility indices are not possible anyway, derivatives are being used that track with a time lag the performance of the underlying index.
Option writers seem to take good care of their own profit-and-loss account with this strategy: Page 1 of 3 Previous Next.