Informed trading · An, Ang, Bali, Cakici (2014)

Change in Put-Call Volatility Spread

Monthly change in put-option implied volatility minus the monthly change in call-option implied volatility. Long low minus short high quintile portfolio of stocks above the NYSE 20th size percentile, value-weighted, re-sorted monthly, hedged each month with a rolling 5-year market beta from prior months only (β = 0.06 at the end of the sample). Quarterly, 1999Q2 to 2022Q4.

Predicted alphareturn · posterior mean, % per year, averaged over the window

Next quarter

2027Q1

1.76%

95% interval −1.93% to 6.24%

Next year

2027Q1–2027Q4

1.81%

95% interval −1.96% to 6.31%

Next five years

2027Q1–2031Q4

2.05%

95% interval −2.08% to 6.63%

Forecast made 1 Oct 2026, conditioning on this portfolio's returns, which end 2022Q4 with Open Source Asset Pricing's data for the signal (dCPVolSpread). The 16 quarters between then and 2027Q1 are unobserved and are integrated out under the model.

Portfolio

Market hedge

Prior beliefsDefault

Half life of shocks to the edge

Long-run performance

Time variation in risk-adjusted returns

Quintile and decile portfolios are sorted each month over common stocks on the NYSE, AMEX and Nasdaq whose market value is above the NYSE 20th percentile, with breakpoints computed over those same stocks, so every signal is measured on one universe. Original paper is Open Source Asset Pricing's replication of the paper's own portfolio, with its sort, weighting, stock screens and rebalancing.

Cumulative market-hedged returnreturn, unhedged

+300% since 1999Q2 · log scale

Past performance, annualized

Window	AlphaReturn	Vol.	Info. ratioSharpe ratio	t-stat
1999Q2–2022Q4	6.30%	9.47%	0.67	3.24
2018Q1–2022Q4	−0.25%	8.84%	−0.03	−0.06
2022Q1–2022Q4	−8.04%	6.02%	−1.34	−1.34
1999Q2–2022Q4	5.87%	6.38%	0.92	4.49
2018Q1–2022Q4	0.41%	4.12%	0.10	0.22
2022Q1–2022Q4	2.62%	2.94%	0.89	0.89
1999Q2–2022Q4	8.78%	11.93%	0.74	3.59
2018Q1–2022Q4	−1.31%	12.00%	−0.11	−0.24
2022Q1–2022Q4	−10.02%	6.64%	−1.51	−1.51
1999Q2–2022Q4	7.26%	8.88%	0.82	3.98
2018Q1–2022Q4	−1.43%	6.85%	−0.21	−0.47
2022Q1–2022Q4	2.95%	4.65%	0.63	0.63
1999Q2–2022Q4	11.49%	9.18%	1.25	6.10
2018Q1–2022Q4	4.37%	7.04%	0.62	1.39
2022Q1–2022Q4	8.66%	5.03%	1.72	1.72
1996Q2–2022Q4	7.52%	9.28%	0.81	4.19
2018Q1–2022Q4	0.48%	8.89%	0.05	0.12
2022Q1–2022Q4	−9.37%	5.59%	−1.68	−1.68
1996Q2–2022Q4	7.24%	6.64%	1.09	5.64
2018Q1–2022Q4	0.77%	4.09%	0.19	0.42
2022Q1–2022Q4	2.03%	3.15%	0.65	0.65
1996Q2–2022Q4	9.99%	11.91%	0.84	4.34
2018Q1–2022Q4	−0.18%	11.76%	−0.02	−0.03
2022Q1–2022Q4	−12.07%	8.54%	−1.41	−1.41
1996Q2–2022Q4	8.91%	9.26%	0.96	4.98
2018Q1–2022Q4	−0.78%	6.67%	−0.12	−0.26
2022Q1–2022Q4	1.83%	4.88%	0.37	0.37
1996Q2–2022Q4	12.48%	9.27%	1.35	6.97
2018Q1–2022Q4	5.34%	7.08%	0.75	1.69
2022Q1–2022Q4	7.42%	5.52%	1.35	1.35
1996Q2–2022Q4	7.71%	9.21%	0.84	4.33
2018Q1–2022Q4	0.71%	9.03%	0.08	0.18
2022Q1–2022Q4	−9.87%	5.52%	−1.79	−1.79
1996Q2–2022Q4	7.36%	6.61%	1.11	5.76
2018Q1–2022Q4	0.91%	4.13%	0.22	0.49
2022Q1–2022Q4	1.72%	3.36%	0.51	0.51
1996Q2–2022Q4	9.76%	12.01%	0.81	4.20
2018Q1–2022Q4	−0.46%	11.69%	−0.04	−0.09
2022Q1–2022Q4	−11.47%	8.07%	−1.42	−1.42
1996Q2–2022Q4	8.87%	9.27%	0.96	4.95
2018Q1–2022Q4	−0.82%	6.66%	−0.12	−0.28
2022Q1–2022Q4	1.92%	4.83%	0.40	0.40
1996Q2–2022Q4	12.70%	9.23%	1.38	7.12
2018Q1–2022Q4	5.60%	7.13%	0.79	1.76
2022Q1–2022Q4	6.84%	5.70%	1.20	1.20

Forecast information ratioSharpe ratio, annualized

Window	Mean	95% interval	P(neg)
2027Q1	0.19	−0.21 – 0.66	0.20
2027Q1–2027Q4	0.18	−0.18 – 0.63	0.19
2027Q1–2031Q4	0.16	−0.13 – 0.58	0.18
Prior changed from site default.
2027Q1	0.31	−0.08 – 0.75	0.06
2027Q1–2027Q4	0.27	−0.07 – 0.67	0.06
2027Q1–2031Q4	0.20	−0.07 – 0.54	0.07
Prior changed from site default.
2027Q1	0.15	−0.25 – 0.66	0.27
2027Q1–2027Q4	0.15	−0.22 – 0.64	0.26
2027Q1–2031Q4	0.14	−0.15 – 0.60	0.23
Prior changed from site default.
2027Q1	0.18	−0.19 – 0.63	0.20
2027Q1–2027Q4	0.16	−0.17 – 0.56	0.19
2027Q1–2031Q4	0.13	−0.12 – 0.46	0.18
Prior changed from site default.
2027Q1	0.56	0.20 – 0.94	<0.01
2027Q1–2027Q4	0.49	0.16 – 0.84	<0.01
2027Q1–2031Q4	0.33	0.07 – 0.65	<0.01
Prior changed from site default.
2027Q1	0.20	−0.17 – 0.64	0.16
2027Q1–2027Q4	0.18	−0.15 – 0.60	0.16
2027Q1–2031Q4	0.15	−0.11 – 0.51	0.15
Prior changed from site default.
2027Q1	0.31	−0.03 – 0.70	0.04
2027Q1–2027Q4	0.27	−0.03 – 0.61	0.04
2027Q1–2031Q4	0.19	−0.04 – 0.47	0.05
Prior changed from site default.
2027Q1	0.14	−0.22 – 0.61	0.25
2027Q1–2027Q4	0.14	−0.19 – 0.57	0.24
2027Q1–2031Q4	0.13	−0.14 – 0.50	0.21
Prior changed from site default.
2027Q1	0.18	−0.15 – 0.59	0.16
2027Q1–2027Q4	0.16	−0.14 – 0.53	0.16
2027Q1–2031Q4	0.13	−0.10 – 0.42	0.15
Prior changed from site default.
2027Q1	0.58	0.23 – 0.95	<0.01
2027Q1–2027Q4	0.50	0.18 – 0.84	<0.01
2027Q1–2031Q4	0.33	0.09 – 0.61	<0.01
Prior changed from site default.
2027Q1	0.21	−0.16 – 0.65	0.14
2027Q1–2027Q4	0.19	−0.14 – 0.61	0.14
2027Q1–2031Q4	0.16	−0.10 – 0.52	0.14
Prior changed from site default.
2027Q1	0.32	−0.02 – 0.71	0.03
2027Q1–2027Q4	0.28	−0.02 – 0.62	0.03
2027Q1–2031Q4	0.20	−0.03 – 0.48	0.05
Prior changed from site default.
2027Q1	0.13	−0.23 – 0.59	0.27
2027Q1–2027Q4	0.13	−0.21 – 0.56	0.26
2027Q1–2031Q4	0.12	−0.14 – 0.49	0.23
Prior changed from site default.
2027Q1	0.18	−0.16 – 0.59	0.16
2027Q1–2027Q4	0.16	−0.14 – 0.53	0.16
2027Q1–2031Q4	0.13	−0.10 – 0.42	0.15
Prior changed from site default.
2027Q1	0.60	0.25 – 0.96	<0.01
2027Q1–2027Q4	0.51	0.20 – 0.85	<0.01
2027Q1–2031Q4	0.34	0.10 – 0.62	<0.01
Prior changed from site default.

Closest tradable stand-in

None shown. Every pair of the ~870 ETFs that traded throughout 2020–2024 was searched on 2020–2022. But this signal's data ends on 31 January 2023, leaving it 20 of the 502 trading days in the held-out window of 3 January 2023 to 31 December 2024: too short a stretch to report a stand-in's alpha and beta on. The closest pair also swung 3.0 times as hard as the strategy itself, past the 2.5× this page allows.