why it is important to test

As you might have observed volatility recently reached historically one of the highest values with VIX over 85%. Financial markets are in turmoil and many observers compare current events to 1987 market crash and the 2008 financial crisis. Please read the attached Wall Street Journal Article and any other articles you may find to discuss the extreme volatility observed in the market in the last few weeks. Think of the fundamental factors based on the news (coronovirus. oil shock, etc.) and at volatility trading strategies that were previously based on low volatility environment and became unprofitable leading to selling pressure and lack of liquidity LM AD AMD ADD AMD ABC Alle Aal Dance Why Are Markets SoVolatile? It's Notjustthe Coronavirus. Traders on the floor of the New York Stock Exchange March 11 PHOTO ANDREW KELYUTERS Like growing brows r Thereditatedbyar a doshme pertanto the The market is dominated by computer-driven investors that rely on signals such as volatility and momentum By Gurjon Baner and Gregory Puchon March 16, 2020 5:12 pm ET Wencedocu m bernador d from perspective enmarktvolatility positiew e la but we now e verhalen the Traderslike Michalomdahepexplalawhythemacinarketagihugumos burbulent period in recent memory These markthabeep o tterhempathe carriera ndihempatheglobe Monday falley 1.000 pathwest or more than 12ked the second want da a rtoyuthor fully explaithe remarkablevelatility Mremadawasingeedspirituasbedroveisconvertible sotticel l iestry Citycomplex before suren March.vestmentfund managedbyhisse billion . Cabe Capital Managementwerp about fortheyear Hewan tespecially concerned about sacialmarkertheconomyvatel prices werbling that morning Since mid Peymarketpeak, the Downl oad the p ower ing dadeboundedats.plataformes d e madhestengthen techscalfactors that have edewithew love to feel about the lookforcompanies aming and the Yet all day. Cabe old stack futures and other lavestments, contributing to 2014 pointer 7 Jones Industrial Average .dropinthe Dow Twodays later theblue-chipindestellintoabearmarket Mr Poma r mcontinued selling-bringing sabrupthalten 11 year burunthathaganinthetroesofthenancial crisis Inadrumstichische scale theredeylemle r den whose machista c hicalandother factorwells are traditiona rea offast-fowisata masydysforschusthe d om deres activity and the marke d y hower difficult togetandoutoferides help drive trading search o e LM 4 -- A TE-E 21 Dalibet ADDAD ABC Aalt aathamaattatutallytuatatatattained pradedrechos control figured the dataatayantararadiatpiyattatatatharts resortzea dachowdharawings importany other in whether yorit Da Pridaywarmeputeracted t h e whether that elimb Buying by these things throu g h Industriearly 2.00 besedap 2 003. Most ofthemovehappesedisthelst m s concentratedbutthat drovetheindepower 1.400 wow the seeds of painful collapse upside me Many of these tradgardero belonghway they were hig the two addithi b erth A2020 began.laverweroptimisteeconomice passwoulde r between the US and Chinaand three centrest-rates from the Federal Reserv levels.Poryearsipadobayeachdiplastocksandtembrace trades that he against thereum s h est e d Inside Cabel Capital Management in LA PHOTO FATHEW SCOTT GANGER FOR THE WALL STREET URL Theoutlookforlovestorsstartedtursingdiretheweekendofab 22. margo care s cases China. Pears it could spread globally and economies into recessionsmashedalongstretchoft financial markets de i lity in Shese hardang marketvlatility, the springputery e s de les h ower TheBewindustrialfelfrom record Feb. 1. teabearmarket Marchi defineasa dedicata 2016- in 19 trading days the fastest suchplungeover. The S&P 500ffered a similardrop. Pusdenkingew eventing with party funda s popularity Risparity ending these and stated in Cesvestor Roberto Croceeded tracking the relations between bot markets, from data Including Monday splunge the tradingwiped $8.20trillion marketvlefromthe road stock market Index. Treasuryyleldsplumbednewlows.reflecting furiousbuyingofale government bonds. Odpricesfelt rates notes since the 1991 first Gulf Warlovestorstled riskerdebt raidcompaniestatloadeduposcredit amidlewaterstrates would have trouble repaying w indtrat You've gonefromasevironment where youthlakecangitoaminibubblete..wecould have a recession starting in March, said Troy G e ce chieflavestmentofficer of Sorride Capital, whicheverses $9billion. "This is a whole new world." According to JPMorgan Chase & Co, more than $100 billion of selling during the week of Feb 23, the worstweeksiace the financialcrisis wasfueledbystrategiessuchasoptioashedging what traderscal voltargeting-using volatilitysacentraliputi trading co n dother systematic tactics Manyathetechnicaltradingstrategies which helpedbymarketsduring 11-yearbullus have been unraveling and driving volatility. On the way up, as volatilayful people bought arch AAE 9 1 Alto Alboet AD AD AD ABC Ace Aalt weede dardhwald Oversigt portaat Mel s d parity on how Cross the party time," Mr. Croce said HebegandumplastryParayant accelerated. h arches the Mr. Croce said he looks to sell shares gingers signals help him make levelheaded decision said. n oscan move prices. The maketo sell bottoms and by t he By the business leaders were cancelgoessandrwelbechers Federal Reservesmer t er March . ch w h ether In addition to investors who have been selling solat e d others have been get out solely because of moves in the value of stock options they have sold coronaviruspushed the closer toward recession "weryclearwhatthaetodowherkesavetoreduce rea basedonthstofinstruction thatwe veglventethecomputer Croce "Thetahepen In recent years, traders big and small have turned to options, which give investorstheright to buy or sell sharelaterat agreed upon prices, touloureturns. Assetsin mutufundis and exchange traded funds using options strategies have soared to $26 bilion from about $10 billion since 2010, cording to Morningstar Direct as of January In a markets, when it's safe to assumemest options will never be exercised, some investors sold options just to collect the premium Banks and trading firms also sell options to investors looking to hedge Arisk partytrategyruby Man Group PLC sehelarustpubliclyhelheduled was cutting sperret stock around the world.com edities and credit the weekearch according to someonediosette By March 12 as the Dow dropped 10% exposure by risk-parity strategies t lowestlevelsince 2013, Nomuraestimates show o another assefeltthe When markets fall and volatility scars, sellers of put options which give the buyer the right to sell at a certain price, and which typically rise in value as the marketers-can be caught In a bind. They scramble to dump shares and stockfutures to trytohedge or to minimize the growing losses. Thatsameday.so-calledvolatility targetingfundslashed the allocatiotostockafoarecord low, according to Deutsche Bank strategist Binky Chadha Data SouzeMetrics estimates that for every percentage point fal in stocks, trading firms need to sell $30 billion in stocks to hedge their stances. These same firms need to buy that much when the market jumps one percent. Hence, still more volatility. Those whotradebasedonvolatilitysaythattheractivity is a dangerousbecause hayalone can't move markets and that is clear how much they amplify the markeridirections Theycanalschelpstemthebleeding Mr.Pomada'sfirmreducedsomeoftsbearishol positions March becausevolatilityhadurged thadbenbettingagainstthemarket.but movedtobuycrudethaday potentially lendingsupporttoolpricesasthey wereratering In some ways, these trading techniques are similate portfolio insurance, the hedging strategy popular in the late 1980s, when investors computers sold stockfutures at the first sign of a decline to protect against deeper losses. On Od. 19, 1987, that tactiled to more computerized selling and arout of more than 22 in the Dow. It's adding to the severity of these rips up and down, said Tobias Hekster, who has been trading options for more than two decades and is co-cheinvestment officer of hedge fund True Partner Capital. ote LM Alle A D ADD ABC Ad Aalt Paragraph A scene at Crabel Capital Management offices PHOTO MATTHEW SCOTT GRANGER FOR THE WALL STREET JOURNAL to tradeherstad t .de SHARE YOUR THOUGHTS Doyouscount volatilitysomewhat knowing that partofsetoqui Join the conversation below. That wastectly with t h e elderetan Trade which al bond that has recorded price de Tw e e Thai highwa y thebestdesting performantech fair e trading? The result? Likely more volatility London's Aspect Capital automatically reduced positions in oil and other assets on March 9. The $7.2 billion firm spread its activity throughout the day, rather than sell at the opening of trading, according to Christopher Reeve, director of risk. That would suggest the firm didn't exacerbate the collapse in oil prices "If markets get more volatile, our positions get smaller," said Mr. Reeve, whose firm has funds that have both gained and lost money so far this year. Further magnifying moves is how tough it can be to complete trades in times of stress. Big banks have backed away from trading over the past decade, leaving fewer players in many markets. The trades that get done can move prices more, causing greater tumult. It's become harder to trade assets from Treasurys to stocks and derivatives during the selloff. The number of Treasurys available to buy or sell near the best prices has dropped and is near levels not seen since late 2008, according to JPMorgan data. It became more onerous to trade S&P 500 futures and stocks, according to Goldman Sachs Group Inc., which said in a March 3 note to clients that the dynamic was contributing to rallies and selloffs Dean Curnutt, chief of New York-based brokerage Macro Risk Advisors, said he has considered leading clients away from trading certain stock options because of this concern. O e LMO 1 As you might have observed volatility recently reached historically one of the highest values with VIX over 85%. Financial markets are in turmoil and many observers compare current events to 1987 market crash and the 2008 financial crisis. Please read the attached Wall Street Journal Article and any other articles you may find to discuss the extreme volatility observed in the market in the last few weeks. Think of the fundamental factors based on the news (coronovirus. oil shock, etc.) and at volatility trading strategies that were previously based on low volatility environment and became unprofitable leading to selling pressure and lack of liquidity LM AD AMD ADD AMD ABC Alle Aal Dance Why Are Markets SoVolatile? It's Notjustthe Coronavirus. Traders on the floor of the New York Stock Exchange March 11 PHOTO ANDREW KELYUTERS Like growing brows r Thereditatedbyar a doshme pertanto the The market is dominated by computer-driven investors that rely on signals such as volatility and momentum By Gurjon Baner and Gregory Puchon March 16, 2020 5:12 pm ET Wencedocu m bernador d from perspective enmarktvolatility positiew e la but we now e verhalen the Traderslike Michalomdahepexplalawhythemacinarketagihugumos burbulent period in recent memory These markthabeep o tterhempathe carriera ndihempatheglobe Monday falley 1.000 pathwest or more than 12ked the second want da a rtoyuthor fully explaithe remarkablevelatility Mremadawasingeedspirituasbedroveisconvertible sotticel l iestry Citycomplex before suren March.vestmentfund managedbyhisse billion . Cabe Capital Managementwerp about fortheyear Hewan tespecially concerned about sacialmarkertheconomyvatel prices werbling that morning Since mid Peymarketpeak, the Downl oad the p ower ing dadeboundedats.plataformes d e madhestengthen techscalfactors that have edewithew love to feel about the lookforcompanies aming and the Yet all day. Cabe old stack futures and other lavestments, contributing to 2014 pointer 7 Jones Industrial Average .dropinthe Dow Twodays later theblue-chipindestellintoabearmarket Mr Poma r mcontinued selling-bringing sabrupthalten 11 year burunthathaganinthetroesofthenancial crisis Inadrumstichische scale theredeylemle r den whose machista c hicalandother factorwells are traditiona rea offast-fowisata masydysforschusthe d om deres activity and the marke d y hower difficult togetandoutoferides help drive trading search o e LM 4 -- A TE-E 21 Dalibet ADDAD ABC Aalt aathamaattatutallytuatatatattained pradedrechos control figured the dataatayantararadiatpiyattatatatharts resortzea dachowdharawings importany other in whether yorit Da Pridaywarmeputeracted t h e whether that elimb Buying by these things throu g h Industriearly 2.00 besedap 2 003. Most ofthemovehappesedisthelst m s concentratedbutthat drovetheindepower 1.400 wow the seeds of painful collapse upside me Many of these tradgardero belonghway they were hig the two addithi b erth A2020 began.laverweroptimisteeconomice passwoulde r between the US and Chinaand three centrest-rates from the Federal Reserv levels.Poryearsipadobayeachdiplastocksandtembrace trades that he against thereum s h est e d Inside Cabel Capital Management in LA PHOTO FATHEW SCOTT GANGER FOR THE WALL STREET URL Theoutlookforlovestorsstartedtursingdiretheweekendofab 22. margo care s cases China. Pears it could spread globally and economies into recessionsmashedalongstretchoft financial markets de i lity in Shese hardang marketvlatility, the springputery e s de les h ower TheBewindustrialfelfrom record Feb. 1. teabearmarket Marchi defineasa dedicata 2016- in 19 trading days the fastest suchplungeover. The S&P 500ffered a similardrop. Pusdenkingew eventing with party funda s popularity Risparity ending these and stated in Cesvestor Roberto Croceeded tracking the relations between bot markets, from data Including Monday splunge the tradingwiped $8.20trillion marketvlefromthe road stock market Index. Treasuryyleldsplumbednewlows.reflecting furiousbuyingofale government bonds. Odpricesfelt rates notes since the 1991 first Gulf Warlovestorstled riskerdebt raidcompaniestatloadeduposcredit amidlewaterstrates would have trouble repaying w indtrat You've gonefromasevironment where youthlakecangitoaminibubblete..wecould have a recession starting in March, said Troy G e ce chieflavestmentofficer of Sorride Capital, whicheverses $9billion. "This is a whole new world." According to JPMorgan Chase & Co, more than $100 billion of selling during the week of Feb 23, the worstweeksiace the financialcrisis wasfueledbystrategiessuchasoptioashedging what traderscal voltargeting-using volatilitysacentraliputi trading co n dother systematic tactics Manyathetechnicaltradingstrategies which helpedbymarketsduring 11-yearbullus have been unraveling and driving volatility. On the way up, as volatilayful people bought arch AAE 9 1 Alto Alboet AD AD AD ABC Ace Aalt weede dardhwald Oversigt portaat Mel s d parity on how Cross the party time," Mr. Croce said HebegandumplastryParayant accelerated. h arches the Mr. Croce said he looks to sell shares gingers signals help him make levelheaded decision said. n oscan move prices. The maketo sell bottoms and by t he By the business leaders were cancelgoessandrwelbechers Federal Reservesmer t er March . ch w h ether In addition to investors who have been selling solat e d others have been get out solely because of moves in the value of stock options they have sold coronaviruspushed the closer toward recession "weryclearwhatthaetodowherkesavetoreduce rea basedonthstofinstruction thatwe veglventethecomputer Croce "Thetahepen In recent years, traders big and small have turned to options, which give investorstheright to buy or sell sharelaterat agreed upon prices, touloureturns. Assetsin mutufundis and exchange traded funds using options strategies have soared to $26 bilion from about $10 billion since 2010, cording to Morningstar Direct as of January In a markets, when it's safe to assumemest options will never be exercised, some investors sold options just to collect the premium Banks and trading firms also sell options to investors looking to hedge Arisk partytrategyruby Man Group PLC sehelarustpubliclyhelheduled was cutting sperret stock around the world.com edities and credit the weekearch according to someonediosette By March 12 as the Dow dropped 10% exposure by risk-parity strategies t lowestlevelsince 2013, Nomuraestimates show o another assefeltthe When markets fall and volatility scars, sellers of put options which give the buyer the right to sell at a certain price, and which typically rise in value as the marketers-can be caught In a bind. They scramble to dump shares and stockfutures to trytohedge or to minimize the growing losses. Thatsameday.so-calledvolatility targetingfundslashed the allocatiotostockafoarecord low, according to Deutsche Bank strategist Binky Chadha Data SouzeMetrics estimates that for every percentage point fal in stocks, trading firms need to sell $30 billion in stocks to hedge their stances. These same firms need to buy that much when the market jumps one percent. Hence, still more volatility. Those whotradebasedonvolatilitysaythattheractivity is a dangerousbecause hayalone can't move markets and that is clear how much they amplify the markeridirections Theycanalschelpstemthebleeding Mr.Pomada'sfirmreducedsomeoftsbearishol positions March becausevolatilityhadurged thadbenbettingagainstthemarket.but movedtobuycrudethaday potentially lendingsupporttoolpricesasthey wereratering In some ways, these trading techniques are similate portfolio insurance, the hedging strategy popular in the late 1980s, when investors computers sold stockfutures at the first sign of a decline to protect against deeper losses. On Od. 19, 1987, that tactiled to more computerized selling and arout of more than 22 in the Dow. It's adding to the severity of these rips up and down, said Tobias Hekster, who has been trading options for more than two decades and is co-cheinvestment officer of hedge fund True Partner Capital. ote LM Alle A D ADD ABC Ad Aalt Paragraph A scene at Crabel Capital Management offices PHOTO MATTHEW SCOTT GRANGER FOR THE WALL STREET JOURNAL to tradeherstad t .de SHARE YOUR THOUGHTS Doyouscount volatilitysomewhat knowing that partofsetoqui Join the conversation below. That wastectly with t h e elderetan Trade which al bond that has recorded price de Tw e e Thai highwa y thebestdesting performantech fair e trading? The result? Likely more volatility London's Aspect Capital automatically reduced positions in oil and other assets on March 9. The $7.2 billion firm spread its activity throughout the day, rather than sell at the opening of trading, according to Christopher Reeve, director of risk. That would suggest the firm didn't exacerbate the collapse in oil prices "If markets get more volatile, our positions get smaller," said Mr. Reeve, whose firm has funds that have both gained and lost money so far this year. Further magnifying moves is how tough it can be to complete trades in times of stress. Big banks have backed away from trading over the past decade, leaving fewer players in many markets. The trades that get done can move prices more, causing greater tumult. It's become harder to trade assets from Treasurys to stocks and derivatives during the selloff. The number of Treasurys available to buy or sell near the best prices has dropped and is near levels not seen since late 2008, according to JPMorgan data. It became more onerous to trade S&P 500 futures and stocks, according to Goldman Sachs Group Inc., which said in a March 3 note to clients that the dynamic was contributing to rallies and selloffs Dean Curnutt, chief of New York-based brokerage Macro Risk Advisors, said he has considered leading clients away from trading certain stock options because of this concern. O e LMO 1