vix divergence from spx

Discussion in 'Trading' started by rc5781, Dec 20, 2008.

  1. rc5781


    something's got to give soon...
  2. Neodude


    Are you sure it isn't just the Holiday effect on the VIX?

  3. Massive bonds (TLT) divergence compared to SPX and VIX too....see this chart.

    Is USA equity market fooked?
  4. Yes...I think the equity market has at least one more significant leg back down. Commercial real estate loan defaults should start popping off heavy as early as Februaury 2009.....just around the corner. Also, who knows what else is next for the economy as the house of cards continues the collapse.

    BTW, oil imo is foretelling what is ahead! :)
  5. When the vast majority of retailers are trying to sell products at 30-50% off BEFORE Christmas there is a major problem.

    Bears should be licking their chops in anticipation of the holiday retail sales numbers.
  6. rc5781


    we could go either way, but pressure is building
  7. People have a tendency to misinterpret the VIX. It is quite simple, two things send the VIX up and two things send the VIX down. The SPX market makers in Chicago will raise implied volatility in the options when the SPX is moving a lot and when people buy options from them. They will lower implied volatility when the SPX is not moving much and when people sell options to them. Then the VIX is calculated by a rather convoluted formula, which is detailed in a white paper on the CBOE site.

    The VIX has been going down because the SPX has basically stopped moving the last few days while we are stuck in this narrow trading range. The VIX is always a lagging indicator, sometimes a concurrent confirming indicator, and only rarely in the hands of a knowledgeable, experienced trader a leading indicator.

    It amuses me when I read all the conjecture on this site when anyone who has been an option market maker understands it implicitly.

    The actual volatility (otherwise known as historical or realized volatility) on a 10 day basis is in the 40s. The VIX is in the 40s. There is no “divergence.”
  8. Priced in? Listening to the MS conference call the other day, they said their CMBS are trading 40c on the dollar (pricing in 60% default rate).
  9. Lucrum


    I was going to post the same thing.
    Probably not as eloquently though.
  10. gkishot


    There is divergence in the directions of where VIX and SPX are moving. The absolute value of VIX is not a problem.
    #10     Dec 21, 2008