Does demand for equities impact the price of puts? (yes)
Does demand for puts impact the price of equities? (yes)
It’s not circumstantial, it’s a strongly held correlation that increases with more dramatic price moves, with a well understood mechanism of transfer between the two
Does demand for equities impact the price of puts? (yes)
Does demand for puts impact the price of equities? (yes)
It’s not circumstantial, it’s a strongly held correlation that increases with more dramatic price moves, with a well understood mechanism of transfer between the two
I think we essentially said the same thing, but took different paths to get there.
And I'd argue that if you want to see how demand for puts impacts the price of equities you'd be much better off tracking option deltas than the VIX.
Does demand for equities impact the price of puts? No not really. I would love to see a study on that.
Correlation is not causation.
VIX goes down when SPY goes up because people are bullish. When you're bullish you buy equities and sell puts. When you buy equities SPY goes up, when you sell puts VIX goes down.
The strongly held correlation is that when people are bullish they do both of those things at the same time. You can't read more into that because the VIX is just a mechanical representation of implied volatility based on market makers models.
Not even true implied volatility, it's like 5 to 1 put implied volatility versus call volatility or something ridiculous like that. I haven't looked in a while to remember the exact ratio.
I feel like you'd have more success arguing from the point of treasuries versus equities because those have different demands for each that definitely could still result in causal relationships.
In fact, if you don't mind my saying that would be a really interesting topic. Though perhaps not something you prefer to write about. Just something that I'll probably go look for studies on now. So anyways, thanks for putting the idea in my head! I'm looking forward to your next piece.
I agree it sounds like we agree on alot but are coming to different conclusions. Does demand for equities impact the price of puts? Absolutely - to the extent that demand for equities change the price of equity, they also inherently change the price (and delta) of puts.
In any case, happy to have sparked some ideas from you and would look forward to read them if you ever decide to publish them. Cheers!
Does demand for equities impact the price of puts? (yes)
Does demand for puts impact the price of equities? (yes)
It’s not circumstantial, it’s a strongly held correlation that increases with more dramatic price moves, with a well understood mechanism of transfer between the two
I think we essentially said the same thing, but took different paths to get there.
And I'd argue that if you want to see how demand for puts impacts the price of equities you'd be much better off tracking option deltas than the VIX.
Does demand for equities impact the price of puts? No not really. I would love to see a study on that.
Correlation is not causation.
VIX goes down when SPY goes up because people are bullish. When you're bullish you buy equities and sell puts. When you buy equities SPY goes up, when you sell puts VIX goes down.
The strongly held correlation is that when people are bullish they do both of those things at the same time. You can't read more into that because the VIX is just a mechanical representation of implied volatility based on market makers models.
Not even true implied volatility, it's like 5 to 1 put implied volatility versus call volatility or something ridiculous like that. I haven't looked in a while to remember the exact ratio.
I feel like you'd have more success arguing from the point of treasuries versus equities because those have different demands for each that definitely could still result in causal relationships.
In fact, if you don't mind my saying that would be a really interesting topic. Though perhaps not something you prefer to write about. Just something that I'll probably go look for studies on now. So anyways, thanks for putting the idea in my head! I'm looking forward to your next piece.
I agree it sounds like we agree on alot but are coming to different conclusions. Does demand for equities impact the price of puts? Absolutely - to the extent that demand for equities change the price of equity, they also inherently change the price (and delta) of puts.
In any case, happy to have sparked some ideas from you and would look forward to read them if you ever decide to publish them. Cheers!