Schaeffer's Trading Floor Blog

Where is Volatility Hiding?

Tracking volatility trends in three asset classes

by 4/5/2013 7:43 AM
Stocks quoted in this article:

I continue to believe these sporadic blips we see in the CBOE Market Volatility Index (INDEXCBOE:VIX) are just that … blips. But hey, I'm (hopefully) open minded.

I do need to see some evidence more than the herd chasing into VIX derivatives at every little uptick. How about a lift in volatility in other asset classes? As we learn over and over again, everything's correlated.

Let's take a look, though we're not going to count Bitcoin. It has a realized volatility of about 1 bazillion, but are no options, it's minuscule and … well, it's Bitcoin. The publicity wave around it slightly overstates its real impact (ok, more than slightly). I do think the plunge the other day had psychological impact, though from an overall confidence standpoint, that's really on the margins.

So we'll start with the iShares Barclays 20+ Yr Treasury Bond Fund (ETF) (NYSEARCA:TLT). Here's its 30-day implied volatility versus its 20-day realized volatility over the past six months.

30-day implied volatility and 20-day historical volatility for TLT

Um … not the most volatile instrument I've seen. In fact, the TLT is about the least volatile asset proxy out there. Implied volatility is essentially at 52-week lows across all timeframes. That's kind of surprising in that bonds are de-facto inverse stocks these days, so I'd expect to see bond volatility pretty much the same as stock volatility. Not that VIX is exactly soaring, but it has lifted a few points (and over 25%!) off the recent lows. If anything, TLT suggests there's even less volatility out there than meets the eye.

What about gold? It has gotten somewhat ugly lately. Here's the SPDR Gold Trust (ETF) (NYSEARCA:GLD):

30-day implied volatility and 20-day historical volatility for GLD

Now we're talking! There's some volatility, though this is related to Bitcoin. Seriously. But whatever -- there's an actual spike in implied volatility in the past few days, while realized volatility has lifted a bit as well. It's still kind of mediocre though -- 14 vol. is still 14 vol. It's at about the mid-point of the last half year, and the low end for the last full year.

And finally, how about something in a currency? We've seen hiccups in the yen carry trade spill over into literally everything. Here's the CurrencyShares Japanese Yen Trust (NYSEARCA:FXY):

30-day implied volatility and 20-day historical volatility for FXY

I think we've found it! Again, 12 vol. isn't enormous or anything, but is relatively high for a currency. In fact, it's pretty much double the lows here from half a year ago, and relatively close to the 52-week highs.

So if you want to hang your hat on volatility spilling over from other asset classes, perhaps the yen is the place to start. It's really not there yet, but it does look like the spot we'll see a true breakout first.

Disclaimer: The views represented on this blog are those of the individual author only, and do not necessarily represent the views of Schaeffer's Investment Research.

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