Monday should be an interesting day. Seems like the vix close below 40 on friday is generating a little buzz. I thought it was kind of interesting that it took long to break below that, given the last few weeks. I'm not convinced the VIX is a lost inidicator for predictive value or trading value. But like any indicator or system, there are certain times when you can throw historical trends out the window. I suspect that the last six months might be one of those times. Anybody out there trade the VIX directly, or just use it as an indicator/confirmation for other options strategies?
Isn't the VIX just a measure of S&P 500 options premiums/implied volatility? Generally speaking, with exceptions, equities tend to stair step up (low volatility) and take the elevator down (higher volatility) hence the notion that a high or rising vix is bearish and a low or declining vix is bullish. But can't you have volatility with the underlying moving either up or down? Would it not stand to reason that the vix is still relatively high because the recent advance in equities was relatively "sharp"/volatile?
I think we're not out of the woods yet. VIX will continue to drop down to 30 level in the mean time, then it will rebounce back up to test the old high in the next six months (probably, it won't reach the old high, but percentagewise, it'll be pretty good. The catalyst to make VIX jump this time could be the Q3 earning.
I agree with the part about VIX testing 30 in the near future, may just drop a lot further, for what its worth the technical support level in my opinion was at 42 and it was tested quite a few times last month, this time round there is a high probability of a break out move downwards. As for a bias I dont have one in this case as i'd personally prefer if I were wrong! A rebound in VIX is also possible, but I dont know if it will be able to sustain it, possibly just a couple of short volatile days, and a shakeout move.
These are good questions Lucrum, and they are the exact same questions that were being presented on an Options oriented financial channel this past Friday. There's a thread around here started by marketsurfer that explores how to use the VIX or VXO as a gauge to determine traders fear/complacency and trending/volatility measures. I use it as a gauge when trading for measuring intra-day fear and complacency. These are my observations also. Yes, you will have volatility, but you won't have a trend. You will have strong choppy moves of prolonged downtrends followed by sharp reversals to the upside (classic Bear Markets). The vix (or vxo) is still relatively high because there is an overall lack of confidence in the markets' continued uptrend. Good trading
Anyone who trades or makes sweeping prognostications based on one single indicator is a fool. VIX/VXO is a valuable indicator, but only when considered in conjunction with other indicators, such as corporate insider buying vs. selling, public sentiment, etc. And even then, a bunch of different people can look at the same readings and come to completely different conclusions. To me, the still elevated VIX/VXO levels while the market continues to trend up, and corporate insider buying continues to outpace insider selling tells me that we are climbing that fabled "wall of worry", and the sustained skepticism about this rally will ensure that it will continue. The markets behave in such a way as to benefit the least number of participants. So what better way to benefit the fewest than to continue rising in the face of continued investor skepticism? Then, once the market has moved sufficiently higher, that skepticism will turn to greed or fear of missing out on the rally, and will lead to complacency and much lower VIX/VXO readings. I suspect at that point we'll also be seeing insider selling at record highs vs. buying, and the smart money will be selling or shorting to the dumb money that ironically finally got over their fear and jumped back into the market. At least that's my take. YMMV.
what happened in the VIX today? The Vix was down on a massive down day! I have never seen that before...