VIX down, markets up

Discussion in 'Trading' started by giggollo, Oct 13, 2006.

  1. schan


    The VIX is computed from the SPX options, using option chain for the two nearest months, then computing the volatility adjusted to 30days.

    VIX in a sense measures the fear. If the market is tanking, the fear drives up the premiums for put options... and hence rise in VIX.

    Right now, market seems to have little fear.
  2. There is no spoon.
  3. S2007S


  4. In the past couple years, right after the VIX closed under 11, the S&P went lower in the next 10 days about 85% of the time.

    With the current insanity we're seeing now, all trends are probably off..
  5. blk


    Overbought can lead to more overbought.

    Better to trade with the trend.

    Chilling article from Schaeffer indeed.
  6. bernie schaffer is a clown and was shorting tech at there lows. his record is no better than anyone else's.
  7. One of the most commonly repeated myths is that VIX measures fear. That is false. VIX measures how much premium investors are willing to pay when buying options. From that, "implied volatility" is computed.

    Over the last several years, VIX moves opposite the market -- VIX up, market down. People assume that it's some sort of rigid law that VIX has to drop when markets rise. What people forget is that in strong bull markets, VIX goes up while the market goes up. This is because investors get so optimistic the market will keep going up the demand for options causes option prices to rise. When this happens, VIX no longer measures fear, it is measuring greed.

    Here's a chart of VIX and SP500 in 1997, during the great bull market of the 90's:

    <img src="">

    Today with VIX dropping as prices rise, that tells me that this an "ordinary" rally as opposed to an "extraordinary" bull run like 1997.
  8. With the VIX at about 12, would the time value of any given S&P option double when the VIX is at 24? Triple at 36?

    Essentially, how much more expensive are/were options when the VIX was at higher levels?
    #10     Oct 14, 2006