S&P 500, VIX - Is the Market Collapsing?

Discussion in 'Trading' started by livevol_ophir, May 6, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    VIX is 26.18 up another 5.1% with the S&P 500 at 1,154.98 down another 1%.

    <img src="http://3.bp.blogspot.com/_hMry1m7UF10/S-LqyKP2aSI/AAAAAAAACPw/mNRtkLl6gpI/s1600/vix_summary2.gif">

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/S-LqycffsBI/AAAAAAAACP4/sksQuZiKfy8/s1600/spx_summary_2.gif">

    On Feb 12 I posted this blog (click the title to read it): <b><a href="http://livevol.blogspot.com/2010/02/vix.html">2-12-2010: VIX Skew - Market Collapse Impending?</a></b>
    There are some nice skew snaps and comps to the market collapse in that one.

    At the time, the VIX was ~25 and the S&P 500 was 1,075. So the VIX is actually up since then, as the market has also risen.

    <b>Now we fast forward to today's post...</b>
    A quick 3 month chart of the S&P 500 is included (<a href="http://livevol.blogspot.com/2010/05/vix.html">in the article</a>). I've highlighted the recent drop.

    The question that haunts everyone is if the VIX pop will further as the two (VIX and S&P 500) are linked. Here is a 2 year chart of the S&P 500 on top and VIX on the bottom - I've highlighted the VIX rises and corresponding S&P 500 dips (<a href="http://livevol.blogspot.com/2010/05/vix.html">in the article</a>).

    Finally I've included a chart for the VIX by itself over the last two years (<a href="http://livevol.blogspot.com/2010/05/vix.html">in the article</a>).

    You can see that it's at a crucial level. A rise from here pushes it past the Jan/Sep/Aug highs and then the next level is the Jun/Jul highs. The recent activity with GS and Europe definitely gives the feel that it's "make or break time." Having said that, last time we felt like this in Feb (see VIX chart above), the market ripped and VIX dipped.

    The Skew Tab snap for the VIX (<a href="http://livevol.blogspot.com/2010/05/vix.html">in the article</a>) illustrates a relatively normal picture.

    The risk is front loaded, flattening out as we go into late 2012...

    So the question: "Is the Market Collapsing?"... My answer....

    Maybe... If Euroland is a cascading disaster, then yes, probably. If not, then who knows what lies ahead.

    A more important question is... "Do you think the market is collapsing?"

    Or even better - do you think the vol is priced correctly one way or the other? If we're headed up, the vol is super high... If we're headed lower, maybe it's time to buy the downside, even though it's exploding.

    This is trade analysis, not a recommendation.

    Details, levels, charts, skews here:
  2. Very heavy support at 1150. If that goes, then who knows? But until it does, buy the small bounces.
  3. livevol_ophir

    livevol_ophir ET Sponsor

    There's definitely still a strong market psychology toward expecting the worst. 2008 isn't out of our minds at all. I agree that in general, the fear is "over" done. Having said that, Europe is the first thing since 2008 that actually looks possibly contagious.

    So far, buying the has been a money maker for sure.
  4. To buy the GS "par", $50 or $10 strike-price puts? :confused: :cool:
  5. livevol_ophir

    livevol_ophir ET Sponsor

  6. Nice call here... I remember reading this and seeing something like 2% drop at the time.... Flash Forward.

    Vols Back.
  7. livevol_ophir

    livevol_ophir ET Sponsor

    Was a great call on my part..lol.. But absolute luck of course... I obviously had no idea it was gonna happen in an hour...

    But, the point remains - if Europe is a contagion, it will hit our stock market.
  8. Mind Boggling just how interconnected the markets are these days.
    I'd love to see a correlation tree for today's market.
  9. If you have been trading currencies vol never left.
  10. This could be the first move down on a global contagion, Greece default, Euro contagion to spain, portugal, italy etc, China bubble, US double dip recession.
    #10     May 6, 2010