AbleMarkets Flash Crash Index Successfully Anticipates Downward Market Volatility

NEW YORK - Sept. 30, 2014 - PRLog -- How much does unexpected downward volatility cost you?  On Thursday, September 25, 2014, the S&P 500 dropped from $199.57 down to $196.49.  Having partially recovered on Friday, September 26, 2014, the S&P 500 oscillated on Monday, first opening nearly $2.00 below the previous close, and then gyrating between $197.00 and $198.00 for the remainder of the day.  If you had stop-loss positions, those may have been tripped in the process, possibly at the very wrong time.

If you are indifferent to repeatedly losing 1% per day, stop and read no further.  Otherwise, you may be interested in learning about and subscribing to the AbleMarkets Flash Crash Index, shown to predict flash crashes and other occurrences characterized by severe downward volatility.

So what can you do about market volatility, and the volatility accompanying downward stock price moves in particular?  Isn’t the market following a random walk, unpredictably moving up and down in the short term?  According to our research, the answer is “NOT ALWAYS”: the market volatility and the downward spiraling of prices can actually be a result of a detectable market microstructure condition.

We think of a market crash as a stress-activated event that only affects diseased markets, much like a heart attack.  A typical heart attack is a result of an extreme activity or event, such as adverse news.  The same bad news, however, does not cause the heart attack in every person who receives it.  Instead, the heart attack is more likely to happen in people with poorly maintained arteries.  While the news ultimately triggering the heart attack arrives unpredictably, the condition of the arteries that makes the heart attack possible develops gradually over time.  This condition of the arteries, the disease underlying the heart attack, can be detected and even treated well in advance to thwart a future heart attack entirely.

Our research shows that a flash crash, or any other intraday event characterized by a sharp downward volatility, is a result of two independent factors: bad news or a large sell order AND poor market microstructure conditions characterized by limited liquidity.  Much akin clogged arteries, the poor market microstructure condition potentially leading to a flash crash can be detected and even subsequently treated.  Our firm has developed unique proprietary tools to do just that.

The detection process is complex and is firmly rooted in the quantitative understanding of intraday market dynamics, our firm’s specialty.  In most basic terms, the index processes intraday tick data for individual financial instruments and derives a score, ranging from 0 to 100, representing the degree of the microstructure “disease” affecting the given instrument.  When AbleMarkets Flash Crash Index shows many instruments afflicted by the disease, a flash crash, or a downward volatility is likely.  If not, the flash crash is not likely.

Over the past year, the elevated Index values across all instruments are followed by crashes 91% of time, delivering the “false positives” of only 9%!  Armed with the correct anticipation of a flash crash, you can immunize your portfolio with 1) cheap just out-of-the-money put options, or 2) closing your long market exposure altogether and reopening it following the crash.  The real question is: can you afford NOT to know what the Flash Crash Index predicts?

To purchase the AbleMarkets Flash Crash Index subscription, please call today: 646-580-4949 or email sales@ablemarkets.com.


About AbleMarkets:

ABLE Markets is an innovative quant firm that has pioneered the High-Frequency Trading and Big Data Finance space since 2007. At our firm, we generate world-class quantitative and high-frequency research. Most of the research is transformed into for-profit data feeds for hedge funds, brokers, exchanges and family offices or indices that integrate into your systems.