This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

It is a Stockpicker's Market

TheStreet Premium Services

A complimentary preview
of Options-Profits Previews

The late August market selloff caused several measures of risk to perk up; now that markets have found a surer footing, it is worth checking up on some popular risk metrics.

1. Historical volatility: Right now, the look-back window for a one month SPX close-close volatility estimate and for the GJR-GARCH model includes the large market declines that occurred in mid-August. In the next few sessions, those volatile days will begin to fall out of the calculation window, and price-based estimates of volatility will decline. I expect SPX one month historical volatility to come down to about 8% by this time next week, assuming no large market declines in the coming week. In that context, short term puts priced at 16% and greater look positively rich.

S&P 500 Average 1 Month Stock Correlation
Source: Condor Options

2. Realized correlation: The average one month realized correlation of S&P 500 constituents rose to 63%, a level we've seen many times this year. If the risk scenarios that have recently occupied investors' minds really are unwinding, we can expect realized correlation to fall back towards 40%. The opportunity here is to take upside exposure in stocks with solid fundamentals where correlation to the index is historically high, on the expectation that such stocks should outperform as correlations fall.

S&P 500 Implied Correlation Indexes
Source: CBOE, Condor Options

3. Implied correlation: the news here is even more positive for investors. Implied correlation for the S&P 500 is already back to its lows for the year (which are also post-crisis lows). The January 2014 index will stop being quoted in several weeks, but the 2015 index has also fallen sharply as the market rallied this week. That's a good sign for stock pickers and fundamental investors, since it means the market expects individual equities to move on their own steam in the months ahead.

OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits

Jared can be followed on Twitter at twitter.com/CondorOptions

 

EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.



Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV

Partners Compare Online Brokers

Top Rated Stocks Top Rated Funds Top Rated ETFs