Monday, February 8, 2010

Why volatility dropped - PART II?


These two tables represent net open positions for two corresponding periods in 2008/09 and 2009/2010, with first table showing us 6-month open interest for period August 2009 – January 2010, while second table is highlighting 6-month open interest for period August 2008 – January 2009.

Let’s start by comparing first rows of both tables (net open positions of Index futures for given periods):

As I wrote in my previous post (Why volatility dropped) we saw that number of traded ALSI contracts over those two periods stayed the more or less the same. What happened with open positions?

It is obvious that open positions increased during last 6 months when compared with same period in 2008/09 – From approximately 338.000 contracts on average for 6 months period in 2008/09 to around 508.000 on average for corresponding period in 2009/10.

What we may conclude from last two posts is that more people are leaving their positions overnight, while daily volume, more or less, remains constant. That by itself can drop volatility and that is what was happening over last few months.

Trade with trend!