🗞️The Wrap: Coffee Break
This week we go abstract with volatility, see more circuit breakers and hang out in our socks. Also, Doc Burry, of Big Short fame, has joined Twitter. Have a look at what he’s fitting into 280 characters here.
Vol of Vol
Alright. You’ve got your head around the VIX; the market’s primary volatility measure. The higher the premium on near-term call and put options, the higher the VIX and the more volatile the market is expected to be.
Let’s take it a step further with the volatility of volatility or “vol of vol” or VVIX. Or, if you worked as a market maker, it’s nicknamed ”schmol”. What the?
VVIX is simply a measure of the VIX’s volatility. And the VIX is an index too, which measures the S&P’s volatility. So really VVIX just takes it one step further by measuring the volatility of the VIX index.
With volatility, the rule of thumb is 16 (actually 15.87). So if the VIX is at 16, we can expect a ~1% daily move in the S&P500. With VIX now around 48, we can expect ~3% daily move in the S&P500. So when the VVIX is at 130, the VIX index is expected to move 8.125% a day. VVIX then tells us how quickly implied volatility in the market is expected to rise or fall. It’s one for a rainy day or a PHD.
I should probably be writing an obituary for Luckin Coffee (LK) holders. Not even the loosest stop loss would have saved these investors after the stock fell 80% overnight, when executives of China’s Starbucks admitted to botched sales figures. The stock has since halted trading.
While there will be plenty of coverage on the scandal, what happened once the stock reopened mightn’t get much attention. The stock doubled soon after the market opened, triggering volatility breakers on the way up. We’ve seen several market wide circuit breakers but circuit breakers for individual stocks are a lesser known phenomenon.
What’s significant is that it is unclear when exactly these breakers hit and how long they will last. LK hit 5 breakers in the first 2 hours of trading lasting anywhere from 5 to 10 minutes. When the stock reopened it gapped up or down significantly. Many fortunes were made and lost last week on one of the wilder moving stocks of this crash.
Coming Soon | Stocks in Socks
With a long-haul work from home situation on many of our doorsteps, we all need something to do other than trying to find the mute button on video calls.
Introducing Stocks in Socks. Each week, we’ll be catching up over Zoom with a different expert to discuss the markets and COVID-19, all in the comfort of our best home-socks.
Up next week, we discuss long-term versus short-term approaches with long-time Stake friend, Brandon from Aussie Wealth Creation.
What We’re Watching | The Giant Beast That is the Global Economy
Add another one to the binge list, this show is an eye opener. With the “stylized storytelling of the Big Short”, we are guided through the complexities of our economy we probably never thought about. From an episode dedicated to the importance of rubber to our livelihoods to the best way to launder a million dollars and naturally concluding with the economics of death; you’ll be thinking of certain concepts like never before. Are rich people dicks or do dicks get rich?
Note that it is limited to Amazon Prime members (or free trialists).
9 = 4, 21 = 9, 22 = 9, 24 = 10, 8 = 5, 7 = 5, 99 = 10, 100 = 7.
What does 16 equal?
Best Buy | SSL +109%
A thinly traded South African ADR was this trader’s fortune maker. The energy company rocketed up the past few days, landing in this week’s Best Buy.
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