General 4% Up and Down Days on the Nifty – We Just Saw The Quietest 5 Years on Record By Deepak Shenoy - June 16, 2014 28 Share on Facebook Tweet on Twitter tweet On the last post about 4% down days, A great point from @VetriSmv who says “You should re-do this incorporating 4% days (up&down days)”. At your service: The last five years have been incredibly quiet indeed. Get Capitalmind Premium 5 COMMENTS Wow! thats eerie.. No wonder VIX is so low. People are getting complacent.. Very very complacent. Just 2 days back, I was reading a blog by a US based quant fund manager that buying insurance was never this cheap. I am not remembering the numbers exactly but he was saying something like 60 bps to insure against a 20% move over the next 6 months. Thats pretty damn cheap. Just curious, what was the date of the last -4% move? I am guessing late last August? 16 aug 2013. Yes, darn cheap. To give you an idea, the 6000 put (20% below today) for December 2014 is trading at Rs. 21. For a Nifty of 7500 that means a cost of 28 bps! Over the past 3-4 years, the retail (including myself) and the small trader crowd has smelt blood selling options. The High IV which existed in the earlier part of the decade due to the scars of 2008-09 along with the surprising lack of volatility historically made it possible for the relatively unsophisticated speculators to make tons of money during this period. With IV’s reaching levels which were never seen before, it is time to be extra cautious. If market keeps on marching upwards and goes to levels like 9000 as predicted by TV pundits, it will make eminent sense to buy long dated protection 10-20% away. In those cases, the risk reward will be loaded in favour of the buyers and the writers of those options will be screwed (for life!) if the markets decides to go on a roller coaster. Can we get complacent charts for the previous stock market meltdowns? Might be helpful to predict the next one?? http://www.bespokeinvest.com/storage/streaks%20without%201%20percent%20move.png?__SQUARESPACE_CACHEVERSION=1403023991362 Comments are closed.