25 April 2017: Huge drop in volatility

A day like Monday demonstrated what can happen to volatility when a big cloud is no longer blocking the sun. The VIX, a gauge of expected stock-market volatility, saw its biggest one-day plunge in more than 5 years. A global relief rally sent markets soaring after a first-round French presidential election result that helped to reduce fears about the future of the euro and the European Union. A drop of more than 25% is extreme, but not unseen. Investors in volatility will be scared at first, but soon they will realise that this is exactly what the trading of volatility is about. Our model Danny Daredevil, which is our most volatility-prone model, was hit hard by yesterday’s drop in volatility. However, Danny is still up more than 7% for 2017. The trading of volatility is not about daily rates, but about a long-term strategy.

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Stock markets were very, very much relieved that Emmanuel Macron will very, very likely become the next French President. All major indices around the world rallied yesterday. US indices were no exception: the S&P 500 added 1.08%, the Dow gained 1.05% and the NASDAQ closed even 1.24% higher. Volatility eased dramatically: the VIX came down with a big bang. The fear gauge lost almost 4 points from well above 14 points to below 11 points (-25.91%). UVXY ETFs fell very steeply, closing lower more than 21%. XIV ETNs, on the other hand, had a very good day, gaining more than 10%.
Danny Daredevil fell victim to this dramatic shift in sentiment. This model lost a substantial part of this year’s gains and saw its RSS shrink to 333%. Adventurous Anny was unchanged as she is still holding cash. Solid Suzy and Lazy Larry not only returned to positive territory, but did so very substantially: their RSS now stands at just below 10%. All of our models are back in the green since their start.
None of our models gave a trading signal at the end of yesterday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

332.83%

7.37%

-7.67%

205%

Adventurous Anny Cash 6 March 2017

21.78%

21.78%

0.00%

321%

Solid Suzy XIV 6 March 2017

9.87%

9.87%

0.31%

99%

Lazy Larry
XIV 6 March 2017

9.87%

9.87%

0.31%

99%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

The annual May holidays, which started yesterday, are set to be the coldest on record, website Weerplaza said last Friday. René doesn’t mind though. At the time of this writing, he is on his way to Japan. From tomorrow on until May 10, he will be reporting on daily life from Japan under the motto “Meanwhile in Japan”. As for now, it is hard to tell how his daily updates will take form, as he is also planning to deviate from the beaten paths. And yes, even in Japan, there are still areas without a wifi signal. During his first trip to Japan, now fifteen years ago, he had to visit internet cafés in order to send out emails to the home front. A lot has changed since then. But even up until a couple of years ago, there were still hotels which didn’t offer a wireless internet service for the convenience of their guests – and these weren’t even the cheapest ones. But this is 2017, so these hotels probably have either adjusted their service level to modern-day standards, or have run out of business by now.
Between now and his first post from Japan lay 36 hours of traveling (door-to-door, that is). René envies those, who are able to sleep while on the move…
Anyway. Ja mata ne!