In other words, because of the European-style exercise and the mean-reversion of volatility, VIX options will often trade at lower value than what seems appropriate during periods of high volatility (and vice versa in low volatility periods), particularly early on in the term of the option.

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It is also worth noting that in order for mean-reversion-based strategies to work, it is not required that the mean be realized for long periods of time, but that markets continue to behave as they always have, swinging pendulum like between the depths of despair and irrational exuberance , or, from risk-on to risk-off.

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Long-term mean reversion is a powerful tool that investors can use to help them attain their long-term goals.

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The edges lie elsewhere, and based upon what the statistics show over and over again, it's in a reversion to the mean in short-term stock prices.

FORBES: Reverting To The Mean

This is due to a combination of factors, including concerns that the market may have gotten ahead of itself on a short-term basis, the increasing possibility of sequestration occurring and a reversion to the mean.

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The current poor performance of stockmarkets reflects, of course, a reversion to the mean after the excesses seen during the dotcom bubble, when the rolling 25-year annual return of US equities reached a remarkable 16%.

ECONOMIST: Market.view: Reversion to the mean | The

Though this does somewhat reflect a reversion to the mean, it also shows that some investors are becoming less enthusiastic about the short-term direction of the stock market.

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