Whats a decent fear / Vol indicator?

Discussion in 'Trading Software' started by trading1, Mar 1, 2011.

  1. The vix is rubbish, it exists in a state of chronic contango, and seems unresponsive to movements in oil, stocks etc (like its about 20 at the moment with a ME/OIL crisis).

    What is a better alternative, not necessary for trading but as a decent gauge of stability in the market, maybe a combination of EEM/OIL/Gold movements? Any thoughts?
  2. nLepwa


    There's no good indicator that indicates fear over all markets.

    On a per market basis the efficiency ratio can be helpful.

  3. LEAPup


    CBOE's SKEW? I guess using that, one may be tempted to trade the vix more often, hence keeping the CBOE happy.:p
  4. I have my own way of reading this, which I figured out after a long study of market history, but the CBOE came up with one interesting angle: the correlation index. When things get dicey, correlations shoot up, so this looks like a decent tool.
  5. The problem with these two is that, unlike the VIX or the SKEW, they are not constant maturity indices. They follow a single expiry all year, rolling at the end of each year.
  6. Interesting replies.... I 'd like to develop my own indicator (given that there might not be anything much else out there). Though its hard to figure out the approach to take towards it, I like the implied correlation concept. I think it ought to also more directly measure the absolute movement of key instruments. I checked the correlations and I find that EEM is ultra responsive to movements in the VXX, also the swiss franc (at least in the last 6 months). At the moment I'm considering
    OIL, CHF
    the implied correlation

    I'd like to include some type of measure of political unrest/economic stress and maybe OIL and CHF is as good as anything for this purpose.

    Also, traders talk of the 'internal structure of the market' the likes of the number of stocks making new highs or lows etc. Is there a good simple indicator for this?

    What else could be put into the solution?

    Also, how to measure when its on the right track? I think it ought to measure the probability of various size movements in the market. As well as providing a single index figure
    Visually, it ought to present a cone chart of the probability of various movements (y axis) over time (x axis),