Stocks - Lotka-Volterra Predator-Prey
Idea for Stocks:
The Lotka–Volterra model makes a number of assumptions, not necessarily realizable in nature, about the environment and evolution of the predator and prey populations:
1. The prey population finds ample food at all times.
2. The food supply of the predator population depends entirely on the size of the prey population.
3. The rate of change of population is proportional to its size.
4. During the process, the environment does not change in favour of one species, and genetic adaptation is inconsequential.
5. Predators have limitless appetite.
The bottom line is that when prey population rises, predator population follows, before prey is hunted back down to the baseline and predators starve - in a continuous cycle.
- Call-Put ratio can be seen as prey (pure bullish positioning), SKEW can be seen as predators (tail risk positioning).
- VIX (death rates) rise as prey and predator populations fall together.
- Clear relationship can be seen as prey population rises > predator population rises > (VIX rises) > prey population falls > predator population falls > (VIX falls) > Repeats
- From 2008, it appears that (4) had been violated due to QE following the 2008 crash, but the environment is returning to normal around 2017.
Speculating a return to a normal predator-prey relationship. Prey population cannot continue to grow as predator population grows with it. Reset of cycle is near.
GLHF
- DPT
The Lotka–Volterra model makes a number of assumptions, not necessarily realizable in nature, about the environment and evolution of the predator and prey populations:
1. The prey population finds ample food at all times.
2. The food supply of the predator population depends entirely on the size of the prey population.
3. The rate of change of population is proportional to its size.
4. During the process, the environment does not change in favour of one species, and genetic adaptation is inconsequential.
5. Predators have limitless appetite.
The bottom line is that when prey population rises, predator population follows, before prey is hunted back down to the baseline and predators starve - in a continuous cycle.
- Call-Put ratio can be seen as prey (pure bullish positioning), SKEW can be seen as predators (tail risk positioning).
- VIX (death rates) rise as prey and predator populations fall together.
- Clear relationship can be seen as prey population rises > predator population rises > (VIX rises) > prey population falls > predator population falls > (VIX falls) > Repeats
- From 2008, it appears that (4) had been violated due to QE following the 2008 crash, but the environment is returning to normal around 2017.
Speculating a return to a normal predator-prey relationship. Prey population cannot continue to grow as predator population grows with it. Reset of cycle is near.
GLHF
- DPT
Penafian
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