Derivatives and Quantitative Strategist

Gaudenz Schneider

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> option implied volatility is stabilizing at an elevated level. This Insight analyses term structure, skew, open interest, and more.</li>
<li>We identify a tactical option opportunity that profits from the current volatility structure.</li>
<li>Are Consumer Price Index and Bank of Japan interest rate decision announcements systematically followed by unusually large market moves? We run the numbers. </li>
</ul>



Nikkei 225 (NKY INDEX) option implied volatility is stabilizing at an elevated level. This Insight analyses term structure, skew, open interest, and more.
We identify a tactical option opportunity that profits from the current volatility structure.
Are Consumer Price Index and Bank of Japan interest rate decision announcements systematically followed by unusually large market moves? We run the numbers. 


EQD | Nikkei 225 Option Implied Volatility Analysis - Focus on Bank of Japan Rate Decision Catalyst

<ul>
<li>
<a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 (NKY INDEX)</a> volatility is trading at historically high levels, and the skew is steep.</li>
<li>National, regional and global catalysts provide the potential for further near-term market turbulence. Downside risk persists.</li>
<li>The current vol environment lends itself to tactical option trades, such as put spreads or risk reversals.</li>
</ul>



Nikkei 225 (NKY INDEX) volatility is trading at historically high levels, and the skew is steep.
National, regional and global catalysts provide the potential for further near-term market turbulence. Downside risk persists.
The current vol environment lends itself to tactical option trades, such as put spreads or risk reversals.


EQD | Nikkei 225 - Persistent Volatility Amid Election Uncertainty: Tactical Opportunities Explored

Quantitative Researcher, MRM Research

Nico Rosti

Quantitative Researcher

MRM Research

Quantitative Research

<ul>
<li>In our last Nikkei 225 insight we predicted that the Nikkei 225 INDEX was overbought and about to pullback and that is exactly what happened the following week.</li>
<li>We also reiterated our view about the index's overall trend, not looking good, and the fact that our seasonal quantitative model point to a coin flip scenario (up/down) for October.</li>
<li>This week the index gapped up and the current SHORT pattern model is showing a good chance to rally from here. Let's check how high it can go.</li>
</ul>


In our last Nikkei 225 insight we predicted that the Nikkei 225 INDEX was overbought and about to pullback and that is exactly what happened the following week.
We also reiterated our view about the index's overall trend, not looking good, and the fact that our seasonal quantitative model point to a coin flip scenario (up/down) for October.
This week the index gapped up and the current SHORT pattern model is showing a good chance to rally from here. Let's check how high it can go.


EQD | The Nikkei Is At The Top But Could Rally A Bit More...

<ul>
<li>The last 2 weeks' upswing in the <a href="https://www.smartkarma.com/entities/nikkei-225" target="_blank" data-smartkarma-citation="entities:22909:1" rel="noopener">Nikkei 225 INDEX</a> does not change our view: it is <strong>WEEKLY overbought</strong> and October is a coin flip according to our seasonal models.</li>
<li>The index <em>could</em> rise further at this point, herd behavior may force investors to pile up into the rally, but our models say rising well past 40k will be hard.</li>
<li>A pullback is not necessarily a great occasion to buy, as already explained in our <a href="https://www.smartkarma.com/insights/eqd-the-nikkei-225-s-trend-is-not-looking-good" target="_blank" rel="noopener">previous insight</a>, the N225's trend does not look good, at the moment.</li>
</ul>


The last 2 weeks' upswing in the Nikkei 225 INDEX does not change our view: it is WEEKLY overbought and October is a coin flip according to our seasonal models.
The index could rise further at this point, herd behavior may force investors to pile up into the rally, but our models say rising well past 40k will be hard.
A pullback is not necessarily a great occasion to buy, as already explained in our previous insight, the N225's trend does not look good, at the moment.


Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

<ul>
<li>The market turmoil over the last few trading sessions has not been kind to a simple index rebalance strategy of buying the forecast adds and selling the forecast deletes.</li>
<li>The overall returns and stock specific returns indicate that trades are more crowded in some indices as compared to others and traders should consider that when position sizing.</li>
<li>Anecdotally, periods of negative returns are followed by periods of strong returns for the strategy as weak hands are shaken out of their positions.</li>
</ul>


The market turmoil over the last few trading sessions has not been kind to a simple index rebalance strategy of buying the forecast adds and selling the forecast deletes.
The overall returns and stock specific returns indicate that trades are more crowded in some indices as compared to others and traders should consider that when position sizing.
Anecdotally, periods of negative returns are followed by periods of strong returns for the strategy as weak hands are shaken out of their positions.


How Has the Index Rebalance Strategy Performed During Market Turmoil?

Japan

The Nikkei-225 Stock Average is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange. The Nikkei Stock Average was first published on May 16, 1949, where the average price was ¥176.21 with a divisor of 225. 

Nikkei 225 (NKY INDEX)

EQD | Nikkei 225 Option Implied Volatility Analysis - Focus on Bank of Japan Rate Decision Catalyst

Nikkei 225 option volatility stabilizes at high level. This Insight identifies a tactical opportunity and analyzes market moves after Bank of...

Gaudenz Schneider

EQD | Nikkei 225 - Persistent Volatility Amid Election Uncertainty: Tactical Opportunities Explored

Nikkei 225 volatility is high with steep skew. Potential for more turbulence due to various catalysts. Tactical option trades recommended.

Gaudenz Schneider

EQD | The Nikkei Is At The Top But Could Rally A Bit More...

The Nikkei 225 index trend for 2024 remains unstable, but right now is showing potential for a rally. Long term view remains negative, but the...

Nico Rosti

EQD | The Nikkei At The Top

The recent Nikkei 225 upswing does not change our recent analysis of the index's trend, plus October will be a coin flip (according to our...

Nico Rosti

How Has the Index Rebalance Strategy Performed During Market Turmoil?

The market turmoil over the last week has resulted in the forecast adds underperforming the forecast deletes. There is large variability in...

Brian Freitas

EQD | Nikkei 225 Option Implied Volatility Analysis - Focus on Bank of Japan Rate Decision Catalyst

​Nikkei 225 option volatility stabilizes at high level. This Insight identifies a tactical opportunity and analyzes market moves after Bank of...

Gaudenz Schneider

EQD | Nikkei 225 - Persistent Volatility Amid Election Uncertainty: Tactical Opportunities Explored

​Nikkei 225 volatility is high with steep skew. Potential for more turbulence due to various catalysts. Tactical option trades recommended.

Gaudenz Schneider

EQD | The Nikkei Is At The Top But Could Rally A Bit More...

The ​Nikkei 225 index trend for 2024 remains unstable, but right now is showing potential for a rally. Long term view remains negative, but the...

Nico Rosti

EQD | The Nikkei At The Top

​The recent Nikkei 225 upswing does not change our recent analysis of the index's trend, plus October will be a coin flip (according to our...

Nico Rosti

How Has the Index Rebalance Strategy Performed During Market Turmoil?

The market turmoil over the last week has resulted in the forecast adds underperforming the forecast deletes. There is large variability in...

Brian Freitas

Nikkei 225 option volatility stabilizes at high level. This Insight identifies a tactical opportunity and analyzes market moves after Bank of...

Nikkei 225 volatility is high with steep skew. Potential for more turbulence due to various catalysts. Tactical option trades recommended.

The Nikkei 225 index trend for 2024 remains unstable, but right now is showing potential for a rally. Long term view remains negative, but the...

The recent Nikkei 225 upswing does not change our recent analysis of the index's trend, plus October will be a coin flip (according to our...