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Tackle Today: Volatility: An instrument of truth

November 20, 2019

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Tackle Today: Volatility: An instrument of truth

« Long perception, short reality. »

By default, investors want to ban volatility from their portfolios essentially due to their perception that Volatility = Risk. By banning volatility they are necessarily banning risk. At least this is what they think.

There is a conceptual problem in it, though.

Absence of evidence is not evidence of absence. It’s not because the financial market agents, makers, and participants do not perceive the risk that it’s not there at all. The complete absence of volatility is even more dangerous as it reveals complacency towards risk, implicating in more risk­taking and leveraging, which, in turn, opens the doors to unknown risks, the ones we are not even aware of and, therefore, not prepared.

I came across this interesting bit from Artemis Capital Management that I want to share with the team:

“Volatility as a concept is widely misunderstood. Volatility is not fear. Volatility is not the VIX index. Volatility is not a statistic or a standard deviation, or any other number derived by abstract formula.

Volatility is no different in markets than it is to life.

Regardless of how it is measured, volatility reflects the difference between the world as we imagine it to be and the world that actually exists.

We will only prosper if we relentlessly search for nothing but the truth, otherwise, the truth will find us through volatility.”

Artemis Capital Management —

Risk goes undercover until the truth is revealed. We’ve seen this happening many times over the last decades.

The market is at its all-time highs and the ice beneath our feet is becoming thin. Time to buy some insurance in case the truth emerges.


Chart of the Day

Context Matters

On the left, the S&P 500 futures contract (/ES) with daily candlesticks. On the right, the same chart seen from another perspective, with weekly candlesticks.

On the left, the S&P 500 futures contract (/ES) with daily candlesticks. On the right, the same chart seen from another perspective, with weekly candlesticks. A pullback to the daily 9-SMA (left) is completely different from a pullback to the weekly 9-SMA (right). If the S&P indeed retraces back to the 3030 price level, that would represent a –2.35% drop in price. You can argue that it would look healthy on the weekly chart but, for some investors, a complete disaster on the daily chart. Context matters.


Video of the day

What is a Protective Put

The Protective Put is a protective options strategy that involves buying OTM Puts to protect against a potential downside risk of a specific holding in your portfolio (a long position).


Today’s line up

Tales of a Technician

Put Protection is Cheap

Volatility is dead and stocks are racking up record highs daily. In a world where everything is awesome, why should I be a downer and plant the seed of protection in your mind? I’ll tell you why.

Traders Lounge 11 PM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

The Coaches Show Replay

If you missed last night’s episode where Coaches Gino Poore and Tyler Craig talked about buying cheap insurance on a bullish market or would like to watch it again, check it out here.

Halftime Report 12:30 PM 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.


Trading Justice Podcast

Trading Justice Episode 348: Silvia Cooke

In this episode of the Trading Justice Podcast, we welcome Silvia Cooke to discuss trading, mindset, her journey through two decades of market conditions and more during our feature presentation. Listen to the episode in the player below:


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