Back during those halcyon days of early and mid-2008, when all anyone wanted to talk about was VIX spikes,the
indispensible counter-argument from some of us in the
financial blogosphere was that arbitrary absolute VIX numbers are
basically meaningless, and that relative context is the thing when it
comes to analyzing volatility.Now that the low-volume summer
blahs are (probably) over, maybe we’ll see some genuine premium hitting
the options boards for the rest of the year, rather than
being concentrated only in energy and commodities. So we wondered,
would there be any edge in taking directional trades based solely on
extreme volatility readings? Or more precisely:
Does
the tendency of implied volatility to revert to the mean have any
consistent correlation with price movement in its underlying?
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