The anechoic chamber located in the Orfield Labs, Minneapolis, is known as “The Quietest Place On Earth”. The average quiet room has a sound level of about 30db. Their anechoic chamber takes it to the Guinness book with a -9db. Its floor, walls, and ceiling absorb all sound, reflecting nothing back, hence its name. It is so quiet, you can hear your own organs. The longest anyone has ever spent alone in the chamber was 45 minutes.
The VIX is back to its anechoic behavior. All noise produced by the economic and geopolitical events during the past months are being absorbed by the VIX anechoic walls, reflecting nothing back.
Don’t be fooled. Absence of evidence is not evidence of absence: it’s not because we don’t see it that it doesn’t exist. Low volatility, doesn’t mean low risk.
Although market participants use VIX as a proxy to measure risk, it is not the risk itself. The known risks are already priced in. What about the unknown ones? For those, we are never prepared.
A market that has a bullish reaction to bad news is a bull market. Our natural and linear train of thoughts can’t accept this as a true statement. Obviously, after the bad event hits everything becomes explainable, both the event and the market reaction. That’s the hindsight bias, a.k.a. “I-knew-it-all-along”. Yeah, you knew it all along but you lost money, right?
As stated by Nassim Taleb, “understanding is a poor substitute for convexity”. We will never fully understand the world we live in and that’s OK as long as we shoot for convexity, that is, design a portfolio that makes money when things go well and lose a manageable amount when things go wrong so you can stay in the game to play another round.
As traders, we are not in the being-right-business but in the money-making business.
Chart of the Day
Low VIX equals low risk?
The image above depicts the market and two traders who are unaware of the risks they are taking. If we could measure Van Damme’s volatility with the VIX, we bet it would be very low. Does that mean there is no risk?
Video of the day
What is a Bull Market
Trading Justice Podcast –
Ep. 283: Bear Market Survival Guide
You don’t buy insurance on your home as it catches fire. You don’t buy insurance on your car as you’re back it into oncoming traffic. And you don’t buy insurance on your portfolio after the bear market. Today on Episode 283 of the trading just this podcast we invite Coach Tyler Craig to talk about the bear market survival guide.
Today’s Lineup
Coaches Lounge – 11:00am EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
Cash Flow Condors MMG – 8:00pm EST
Join and learn how to manage your Condors live with Coach Tyler.
Halftime Report – 12:30pm EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
Coaches Show – Replay
If you missed last night’s episode where Coach Tyler talked about How to use covered calls to increase your probability of profit or would like to watch it again, check it out here.
Market Recap – 4:30pm EST
The Market Recap is designed to give you a quick overview of the day that was. While brief, this report is designed to cover all of the major events that drove the markets that day and help you plan for the trading day ahead.
