Question regarding the Risk Reversals and Volatility. You are posting a multi month chart. Some are using a 1-month, others a 1-week period. What´s your opinion on that? Which one is more useful from a swing trading perspective?
I like to have a bit of a longer-range perspective but I always look a the the relative movements anyway. Take the USDCAD one as an example: it looks like the RR is "far away" from the spot price but that's because of the large movement in September-December 2022, and recent highs and lows line up.
In a way yes: e.g. when price and the risk reversal don't move in the same direction then traders in the options market have a different view on where price might go. The risk reversal reflects the cost of hedging, so if price goes up but the risk reversal goes down then that means that downside hedges are in higher demand (presumably for a reason).
But would you agree that it also depends on volatility? So if the price of hedging stays high for a longer period, but volatility contracts, than the demand for those hedges is also weakening?
The risk reversal is call IV minus put IV, so it’s simply: what is more expensive to buy, 25 positive or 25 negative deltas? That’s pretty much all I care about here. ATM vol is a different story.
amazing job, new format is very attractive
Thanks, glad you like it!
Great Analysis as always! Was wondering, do you create the COT snapshots pdf from an excel spreadsheet?
Thanks 🙏
Yes, the data is in Access and loaded into Excel. The printing is done with a simple VBA macro.
Now that’s worth another guide😃
That would only expose how my ability to code basic VBA is largely powered by stackoverflow.com and why my SQL mentor hates the way I write queries 😂
As always great analysis. Thank you.
Question regarding the Risk Reversals and Volatility. You are posting a multi month chart. Some are using a 1-month, others a 1-week period. What´s your opinion on that? Which one is more useful from a swing trading perspective?
Thank you 🙏
I like to have a bit of a longer-range perspective but I always look a the the relative movements anyway. Take the USDCAD one as an example: it looks like the RR is "far away" from the spot price but that's because of the large movement in September-December 2022, and recent highs and lows line up.
Never thought of it in such a way. So you are also looking for "divergences" between RR and the spot price?
In a way yes: e.g. when price and the risk reversal don't move in the same direction then traders in the options market have a different view on where price might go. The risk reversal reflects the cost of hedging, so if price goes up but the risk reversal goes down then that means that downside hedges are in higher demand (presumably for a reason).
But would you agree that it also depends on volatility? So if the price of hedging stays high for a longer period, but volatility contracts, than the demand for those hedges is also weakening?
The risk reversal is call IV minus put IV, so it’s simply: what is more expensive to buy, 25 positive or 25 negative deltas? That’s pretty much all I care about here. ATM vol is a different story.
Thank you for the explanations. What are you specifically looking at ATM vol?