New AI Volatility Edge Platform

Posted on November 11, 2020 by

Volatility is arguably the single most important option concept, effectively determining the price of almost every derivatives instrument. The AI Volatility Edge platform uses the latest in machine learning algorithms to identify and quantify real-time volatility pricing anomalies that can be exploited with strategies based on SPX, NDX, and RUT index options, VIX futures, and VIX options. The AI Volatility Edge (AIVE) platform provides forecasts and relative value analysis across the entire term structure of volatilities.

Why is volatility so important? Because volatility is synonymous with the value of the option. If you could forecast the future distribution of returns, you would be able to estimate the current value of every option. If you could forecast implied volatility (IV - the market’s estimate of volatility) in the future, you would be able to estimate the future value of volatility indices and the future value of every option. If your estimates of the future return distribution and future implied volatilities diverged materially from the market’s estimates, you could design option and volatility index futures strategies to exploit those targeted pricing anomalies and earn excess risk-adjusted returns.

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Posted in AI Volatility Edge, Implied Volatility, Market Timing, Option Volatility, Options, Video | Tagged , , , , , , , , , | 6 Comments

Recession Model Forecast: 10-1-2022

Posted on October 18, 2022 by

In the past, I published the Trader Edge Recession Models every month. After finalizing and rolling out the 32-bit and 64-bit versions of a new comprehensive option volatility forecasting platform called AI Volatility Edge (AIVE) and publishing my latest book (Trading Option Volatility), I have been focusing exclusively on my trading and proprietary research. As a result, I suspended the regular monthly recession model publication.

Due to global central bank intervention, rapid inflation, rising interest rates, and deteriorating conditions across many markets, a number of readers have asked me to publish a new recession model update. Below is the latest recession model update as of October 1, 2022. Please note a new AI model designed to identify the 6-month period following the trough in the SPX, associated with an NBER recession.

Monthly Update

This article updates the diffusion indices, recession slack index, aggregate recession model, aggregate peak-trough model, and AI post-trough model as of October 1, 2022.

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Posted in Economic Indicators, Fundamental Analysis, Market Commentary, Market Timing, Recession Forecasting Model, Risk Management | Tagged , , , , , , | 1 Comment

Recession Model Forecast: 03-01-2022

Posted on April 7, 2022 by

In the past, I published the Trader Edge Recession Model every month. After finalizing and rolling out the 32-bit and 64-bit versions of a new comprehensive option volatility forecasting platform called AI Volatility Edge (AIVE) and publishing my latest book (Trading Option Volatility), I have been focusing exclusively on my trading and proprietary research. As a result, I suspended the monthly recession model publication.

Due to increasing coverage of yield curve inversions, rapid inflation, rising interest rates, war in Ukraine, sanctions on Russia, and the prospective increase in recession risk, I decided to carve out the requisite time from my trading and research to publish the March 2022 recession model update.

The war only began in late February, so the full economic impact of the war and the resulting sanctions will not be fully reflected in the data for several months. The same is not true regarding inflation, the less accommodative Fed policy, and the rise in interest rates, all of which have been anticipated for months.

Monthly Update

This article updates the diffusion indices, recession slack index, aggregate recession model, and aggregate peak-trough model as of March 2022.

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Posted in Economic Indicators, Equity Market Snapshot, Fundamental Analysis, In-Depth Article, Market Commentary, Market Timing, Recession Forecasting Model, Risk Management, Strategy Development | Tagged , , , , , , , | 1 Comment

Trading Option Volatility Featured in Stocks & Commodities Magazine

Posted on August 3, 2021 by

Brian Johnson's latest book, "Trading Option Volatility: A Breakthrough in Option Valuation - Yielding Practical Insights into Strategy Design, Simulation, Optimization, Risk Management, and Profits", is featured in the Books for Traders section of the current (August 2021) issue of Technical Analysis of Stocks & Commodities magazine. Trading Option Volatility represents a breakthrough in option valuation, which has profound implications for option strategy design, option and volatility trading, and for calculating reliable option risk metrics.

If you enjoy the new book, please take a few minutes to provide a brief review on Amazon. It would be greatly appreciated. Thank you.

Limited New Posts on TraderEdge.Net

After spending over a year researching and writing my latest book, I am devoting my time almost exclusively to my proprietary research and trading efforts, particularly the application of my new AI Volatility Edge (AIVE) Platform and the development of new AI trading tools. As a result, I do not envision publishing regular recession model updates on Trader Edge for the foreseeable future. Time permitting, I will share occasional insights from my latest research and trading efforts.

Brian Johnson

Copyright 2021 Trading Insights, LLC. All rights reserved.

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Posted in AI Volatility Edge, Implied Volatility, Option Volatility, Options, Trading Option Volatility, Volatility Forecast | Tagged , , , , | 4 Comments

Trading Option Volatility Now Available on Amazon

Posted on March 4, 2021 by

The Kindle and Print versions of my new in-depth options book "Trading Option Volatility: A Breakthrough in Option Valuation - Yielding Practical Insights into Strategy Design, Simulation, Optimization, Risk Management, and Profits", are now both available on Amazon. Trading Option Volatility represents a breakthrough in option valuation, which has profound implications for option strategy design, option and volatility trading, and even for calculating accurate and reliable option risk metrics (Greeks).

I have developed a practical new analytical framework that eliminates the invalid constant volatility and interest rate assumptions of the Black-Scholes and binomial options models, and generates theoretically correct and internally consistent, current and future option prices, volatility index futures prices, and risk metrics (Greeks), across all term structures of volatilities and all term structures of interest rates - providing an exploitable edge for option traders. 

If you enjoy the new book, please take a few minutes to provide a brief review on Amazon. It would be greatly appreciated. Thank you.

Brian Johnson

Copyright 2021 Trading Insights, LLC. All rights reserved.

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Posted in Option Volatility, Options, Recommended Reading, Volatility Forecast | Tagged , , , , | 2 Comments

Temporary Suspension of Recession Model Posts

Posted on January 23, 2021 by

In conjunction with the development of the AI Volatility Edge Platform, I have been working on a new options book for the past year. It is my most ambitious book to date, with extensive volatility research and modeling. To allow me to focus all of my available resources on completing the book, I am temporarily suspending the release of monthly recession model posts until after the new book has been published.

Please see TraderEdge.Net for updates on the status of the new book.

Brian Johnson

Copyright 2021 Trading Insights, LLC. All rights reserved.

AI Volatility Edge Platform: E-Subscription

Option Income Strategy (OIS) Universal Filter: E-Subscription

Option Strategy Risk Management: An In-Depth Article Introducing an Interactive Analytical Framework for Hedging Option Strategy Risk

Option Income Strategy Trade Filters: An In-Depth Article Demonstrating the Use of Trade Filters to Enhance Returns and Reduce Risk

Exploiting Earnings Volatility: An Innovative New Approach to Evaluating, Optimizing, and Trading Option Strategies to Profit from Earnings Announcements.

Option Strategy Risk / Return Ratios: A Revolutionary New Approach to Optimizing, Adjusting, and Trading Any Option Income Strategy

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Posted in AI Volatility Edge, Economic Indicators, Fundamental Analysis, Recession Forecasting Model | Tagged , , , , , , , , , | Leave a comment

Recession Model Forecast: 12-01-2020

Posted on December 20, 2020 by

I made a number of significant improvements to the recession model in January of 2020. If you missed the January recession model post, or if you would like to review the improvements to the models, please revisit the Recession Model Forecast: 01-01-2020. In the following months, I reduced the number of input variables in all of the peak-trough neural network models and expanded the number of individual models. I also further constrained the models, which made them even more robust - especially when interpreted as a single aggregate peak-trough forecast. Finally, due to the very large discrete changes in the economic data due to COVID-19, I capped the maximum standardized deviation above the recession threshold, which is particularly important when reporting the mean standardized deviation. No changes were made to any of the explanatory variables.

Unfortunately, I have been unable to publish the recession model update for the last two months. I have been swamped finalizing and rolling out 32-bit and 64-bit versions of a new comprehensive option volatility forecasting platform called AI Volatility Edge (AIVE). I devoted the last year to designing AI Volatility Edge - which is an integrated collection of AI models based on the latest machine-learning (ML) algorithms. The AI Volatility Edge platform is available on a subscription basis for professional and non-professional option traders. Please see my initial post for more information about AI Volatility Edge.

Monthly Update

This article updates the diffusion indices, recession slack index, aggregate recession model, and aggregate peak-trough model through November 2020.

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Posted in AI Volatility Edge, Economic Indicators, Fundamental Analysis, In-Depth Article, Market Commentary, Market Timing, Recession Forecasting Model, Risk Management, Strategy Development | Tagged , , , , , , , | 1 Comment

64-Bit AI Volatility Edge Platform Now Available!

Posted on December 2, 2020 by

A NEW version of the AI Volatility Edge (AIVE) platform is now available and is compatible with 64-bit versions of Excel!

The original AIVE platform is available for use with 32-bit versions of Excel (even if installed on a 64-bit version of Microsoft Windows).

For additional information on the AI Volatility Edge platform, please see the initial AIVE announcement post or the more detailed AI Volatility Edge product page. Both of these pages include links to two AIVE demonstration videos.

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Posted in AI Volatility Edge, Implied Volatility, Option Volatility, Options, Strategy Development, Volatility Forecast | Tagged , , , , , , , , | Leave a comment

Recession Model Updates Resume Next Month: 12-01-2020

Posted on November 22, 2020 by

I am still working on the rollout of the new AI Volatility Model Edge (AIVE) Platform. The AIVE platform for 32-bit versions of Excel is now available! This version is compatible with 32-bit and 64-bit versions of Microsoft Windows. I am currently exploring the possibility of releasing a version for 64-bit versions of Excel.

The AI Volatility Edge Platform required a full year of research and development. This new tool uses the latest in machine learning algorithms to identify and quantify real-time volatility pricing anomalies that can be exploited with strategies based on SPX, NDX, and RUT index options, VIX futures, and VIX options. The platform provides real-time forecasts and relative value analysis across the entire term structure of volatilities.

I plan to resume publishing the monthly recession model in December.

Brian Johnson

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Posted in AI Volatility Edge, Option Volatility, Options, Recession Forecasting Model | Tagged , , , , , , | Leave a comment