Chart of the Day: Weekly volatility report
At the start of each week I take a more holistic look at key trading variables that affect our risk-to-reward trade-off and how we assess position-sizing. Of course, leverage plays a part here, too. But if we can assess positioning, options volatility skew what’s priced in (rates) and both realised and implied volatility. We can then get a clearer sense of the backdrop by which we trade in.
By adding percentile ranking, we can put context as where these variables reside within the last 12-month range. The higher or lower the number (between 0 and 100), we can understand extreme readings, which not only gives a guide to sentiment around an instrument, but it can also give a sense of where the market anticipates either direction or the extent of expected move.
See here for more on how to use this report and the logic involved.
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