Calling all Vix Specialists

Discussion in 'Trading' started by rc5781, Dec 20, 2007.

  1. rc5781


    Does the Vix usually lead the SPX or the SPX lead the Vix? or both equally probable?
  2. Like many things in the market, it varies according to conditions..

    Think of the VIX as a second option, like going to see another doctor. I personally think the VIX is a good indicator to watch for market sentiment.

    fwiw. now the VIX is now well below it's 10 moving average. Under most conditions, that would be a good suggestion to sell.

    But given the holiday bullish bias, we may continue to see a falling VIX for the rest of 2007.
  3. segv


    None of the above.

    The VIX is calculated using the weighted short and long term implied volatilities of out-of-the-money SPX index options. The calculation is sensitive to both price changes in the SPX and the individual index options.
  4. Lucrum


    I don't watch it myself but you may find this interesting.

    "Stocks Down, Option Volatility (VIX) Down: What Happens Next

    Interestingly, over the past five trading sessions, the S&P 500 Index ($SPX) has been down about 1.9%, but the VIX has also been down 8.8%. I went back to the start of 2004 (N = 995 trading days) and found that the average VIX change when the five-day $SPX has been down more than 1% has been +16.46%. We've only had six occasions during that time in which $SPX has been down more than 1% over a five-day period and VIX has also been down. The S&P 500 Index was lower five days later on four of those six occasions, for an average loss of -.77%.

    Indeed, when $SPX has been down more than 1% over a five-day period and VIX has been up less than 4% during that same time (N = 29), the S&P 500 Index has been higher only 7 times and lower 22 times over the next five trading days (average loss = -.84%). When stocks have been lower but options participants are displaying relative complacency, short-term returns have been subnormal."

    Brett Steenbarger, Ph.D.
  5. rc5781


    Wow, you da man...timely as hell...

  6. nitro


    VIX only measures the Ricci tensor, and therefore has no predictive qualities. The problem in trading is the Weyl tensor.

  7. rc5781


    Sorry my differential geometry is pretty weak....good luck in finding the traceless component of the Riemann curvature tensor....
  8. nitro


    Actually, when trading enters into the picture, what we want is the equivalent of the stress energy tensor as defined in General Relativity.

    There is nothing we can do about Weyl tensors, as that is the equivalent as saying we can fortell market risk. In fact, VIX is setup for institutions to deal with the unknowable Weyl tensor. The Ricci tensor is quite observable at any instant in time.

  9. rc5781


    ok nitro, don't make me wikipedia anything else tonight, please, lol...

    Based on Dr. Bretts post today, he's saying we should be headed south in the next five trading days....
  10. nitro


    My model says we close the year out at 1480 SPX, with a Gaussian distribution centered at 1480 (so you can get the confidence interval).

    #10     Dec 20, 2007