I trade options - implied volatility tells me how the market is feeling about future prices. The challenge is it changes very quickly - which is what I think your point is. It moves and people ask, "what was that?"
No better test than to track 12 month implied volatility on currencies. 2 years ago before the USD rally we were buying vol on USDCNH below 2%. Now it is over 6%. Option writers are telling us where the USD is going.
By the same token vol on European banks is very low - writers are telling us European banks are going nowhere. Not exactly leading anything - maybe they are right but it feels cheap to me especially once the Fed raises rates
I trade options - implied volatility tells me how the market is feeling about future prices. The challenge is it changes very quickly - which is what I think your point is. It moves and people ask, "what was that?"
No better test than to track 12 month implied volatility on currencies. 2 years ago before the USD rally we were buying vol on USDCNH below 2%. Now it is over 6%. Option writers are telling us where the USD is going.
By the same token vol on European banks is very low - writers are telling us European banks are going nowhere. Not exactly leading anything - maybe they are right but it feels cheap to me especially once the Fed raises rates