This is the second of a two part series on how the different major stock indices (S&P 500, Dow, Nasdaq 100, Russell 2000 and S&P 100) move. The first part was on how implied volatility (IV) affects each. Knowing that, how does each of the indices react to different market environments? Dr. Data is back to apply the tools of Data Science and make the complex more easily understood.
Mike, aka Dr. Data, used a series of tables and a graph to explain things and place the data in context. When the market is selling off the Russell sells off the most followed closely by the Nasdaq 100, then the S&P 500, the S&P 100 and finally the Dow. When the market rallies the Nasdaq 100 rises the most followed by the Russell 2000. Dr. Data further showed how the market prices more risk in the smaller caps by showing, in comparison to the S&P 500, the percentage of days that each of the other indices has a higher IV. A graph showed how the spread between the Russell and the Dow increases in periods of market declines. The market seeks the relative safety of large caps during such times.
A table showed 12 years of results of selling One Standard Deviation Strangles using options with 45 days to expiration (DTE). The table included the percentage profitable at expiration, percentage profitable when managed at 50% of max profit, average profit at expiration and the average profit when managed at 50% for each index.
Watch this segment of “The Skinny On Options Data Science” with Tom Sosnoff, Tony Battista and the head of our research team, Dr. Data (Michael Rechenthin, Ph.D.) for the important takeaways and a better understanding of how the different indices move during different market environments.
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