Dramatic Shift In Prem Below Fv

Thank you for your excellent post regarding S&P 500 premiums.

A few questions for you to clarify:

1. Volatility compression. Do you mean this in terms of PRICE volatility compression or PREM volatility compression? I would define PRICE volatility compression as a low standard deviation of price (tight range).

2. If there exists a large drift in the between the futures contract and the cash index, then wouldn't that opportunity be quickly exploited in the markets? I know of a hedge fund that has under 8ms reaction time for its premium arb program...

3. What signals do you use to determine whether to buy or sell?

4. Is there a way to expand the outlook from a shorter-timeframe to an intermediate-timeframe to take advantage of options strategies?

Thanks much in advance!
 
Jack: I have been following the PREM for quite a while now and have actually written my own before I got myself IQData. What you are describing confirms some of my own work but on a completely different indicator (the Zero at http://evilspeculator.com).

I would be interested in taking this discussion offline - my email is admin [at] evilspeculator dot com.

Cheers,

Molecool
 
Quote from molecool:

Jack: I have been following the PREM for quite a while now and have actually written my own before I got myself IQData. What you are describing confirms some of my own work but on a completely different indicator (the Zero at http://evilspeculator.com).

I would be interested in taking this discussion offline - my email is admin [at] evilspeculator dot com.

Cheers,

Molecool
More...

Why dont we keep this discussion online here and have a mod delete the idiots who have no desire to learn.

jjf
 
BTW, this was not an attempt to promote the Zero - have enough subscribers already.

My point was that what you are describing can be confirmed by the Zero's gyrations as well. I wouldn't call it 'front running' as it only sometimes precedes price movements as evidenced by divergences of varying degree. You can actually go to this page to see all my daily wrap up posts:

http://evilspeculator.com/?cat=42

There are tons of charts and many of them point out blatant divergences which have become a fairly reliable way of 'fronting' the smart money.

My work on the PREM is admittedly very rudimentary and I am working with a trader friend of mine on a complete system. What you describe is intriguing and I plan to intensify my research based on your comments - your work is greatly appreciated.
 
>60% of NYSE volume is index-arb. To assume that the prem is predictive due to persistence is silly. It's a function of flow in and out of the arb books.

What does the MACD say? How does the $prem look on the 89 tick chart?
 
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