Discussion in 'Trading' started by Bryan Roberts, Jan 26, 2002.

  1. trdrmac


    Babak, can you tell me where I can find the article? Or if you want to paraphrase I would be interested to see what they say. Based on my observation we are in a stealth bull market. I have to keep purging my New Highs List and my New lows list is as bare as old mother hubbard's cupboard.

    Have a good weekend.
    #31     Mar 8, 2002
  2. Recently on this board and others I frequent, there seems to be a concensus that the current low VIX readings will lead to a sell off. I have VIX data going back to 1986 (TC2000). I exported this data to Metastock and then overlaid the S&P 500 Index. One clear pattern that emerges is that EXTREME readings usually do lead to reversals. (i.e. high VIX spikes coincide with market bottoms and visa versa). But just because you get a new low on the VIX doesn't mean you will get a selloff. In fact it's not unusual for the VIX to trend downward as a market works sideways or begins to climb back out of a mini bear market.
    #32     Mar 10, 2002
  3. stevet


    a rule in the markets is only a rule until it is a rule
    #33     Mar 10, 2002
  4. Babak


    #34     Mar 11, 2002
  5. The TradingMarkets site publishes a series of market bias signals each night based on a VIX system that is fully disclosed and explained in one of the trading manuals there. In general, their signals require an extreme reading and a reversal. A low or high reading alone is not enough to trigger a signal, unless it was produced by a spike.
    #35     Mar 11, 2002
  6. The Tradingmarkets VIX reversal signals are short term directional bias indicators based on movement/changes in the VIX (e.g., the VIX moving a certain % from its moving average sets up a potential bias for a move in the opposite direction) and aren't trying to identify possible intermedite or major tops/bottoms (which high/low VIX readings would be used for).

    They're two different - not mutually exclusive - uses of the VIX.
    #36     Mar 11, 2002
  7. Babak


    Just came across this article from HD Brous´s site:

    Also from, I got a neat idea attempting to explain the subdued VIX readings. The theory is based on the long convertible bond, short call strategy that a lot of people are using these days. With the massive amount of conv bonds issued last year and so far this year, there is a corresponding massive amount of calls written. All this supply of calls, so goes the theory, helps to make volatility "cheap".
    #37     Mar 20, 2002
  8. Another thing to note, something that I rarely used to pay attention to in a stable interest rate environment, is the rho...(or the interest rate factor) in the Black-Scholes formula...The first time I really noticed this recently was when I saw that the futures for the SP index were trading at only a 2 pt premium to the cash contract for an expiration that is close to 3 months away. When you consider that the futures premium 2 years ago when short term instruments had a yield of 6+%, was somewhere in the vicinity of the high teens for the same duration, you can sense how much this interest rate factor discounts the present value...The options are reacting much the same...There used to be a high premium on the call side of any combination strategy due to the cost of carry, I imagine...By no means, am I an expert on any of this stuff, but I have observed these phenomenon...perhaps someone with a better handle on the exact math could clarify...

    But I do imagine that somehow, somewhere in the mix, this low interest rate component has had some effect on this VIX index...Considering the uncertainty of the environment we are currently in and the longer term bear market trend, it would seem unreasonable that the VIX would trade this low if not for the fact that Greenspan cut interest rates 11 times in one year and effectively brought real rates below 0...
    #38     Mar 20, 2002
  9. Hi,

    I saw the posting on VIX and would like to know more about the indicator (?). Presumably VIX refers to "volatility index" but looking through my T.S.6 canned indicators I didn't see it listed. Is it something only used for options, or can equity swing traders use it to their advantage also? If so, how?
    #39     Mar 20, 2002
  10. Banjo


    The vix is a measure of eight oex options. It is an inverse indicator. Imagine yourself out on a lake looking at the shoreline full of trees. The vix is the reflection in the water of those trees, the taller the tree on the shore the deeper the reflection in the water, a mirror image. If the indice,SPX/INDU is high the vix would be low, representing complacency. If the indice is low the vix would be high, representing fear.
    The vix for the NAZ is vixn. Since it is an inverse indicator it shoud be up when the naz is down and visa versa. Today the vixn and the comp both finished down. This is divergence. The indice usually corrects to the vix/vixn. You are watching at an interesting time. End of quarter and end of mo. are coming up, will window dressing catch shorts off gaurd ? Gonna be interesting.
    #40     Mar 20, 2002