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What Happens When AIG Gets Stupid?

AIG has been a dog over the past 18 months, but every once in a while it has a spark of momentum brilliance. I usually attribute outsized demand in AIG as a result of a spike in risk appetite as well as any government voodoo that is taking place in equity land.

But what does this hold for equities? The chart below is a 2 year daily chart of AIG with a bottom volatility study. The study isn't important; just eyeball the big green spikes up (vol up with stock):

Next we're going to take those date clusters and see what the SPY did around that time:

So it seems that when we get large upside volatility spikes in AIG, it tends to be followed with a ton of risk and liquidity into the equity markets. The sample size is statistically insignificant, but for now this risk measure bodes well for the equity market.

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/