What's with the VIX today?

Discussion in 'Trading' started by piezoe, Jul 23, 2009.

  1. piezoe


    Routine behavior for the VIX is to move up when the market is moving down and vice versa. In other words it normally moves inversely with the market. There are times however when the VIX seems to get out of sync with the market. For example it might move up all day long while the market also moves up in the morning, but then in the afternoon the market falls and the VIX's steady rise all day seems to have predicted this late move in the market.

    I was following the /ES today and i noticed that the VIX remained out of sync with the market all day long. The /ES and VIX both rose in the am, then the /ES leveled off for a couple hours threatening to move either higher or lower, but doing neither, as the VIX began to fall rather steadily. Then finally about 15 minutes before the regular mkt hours close the /ES began to fall. Just the opposite of what would normally occur with a steadily falling VIX.

    Today the VIX and market moved in the same direction!

    Would some of you VIX experts care to weigh in on this, and explain to me, a VIX neophyte, why the VIX and market moved in the same direction today, all day!

    P.S. The big gap down in ES, YM, and NQ in the brief 15 minute period between 4:15 and 4:30 was also fairly rare (though we did have a big gap up during that same 15 min time period on 7/14. The Russell (TF) did not gap down with the other index futures but did move down eventually to fall in line with the other index futures. All in all it seemed to me that we were trading on another planet today.
  2. The big eye opener will be not only noticing this divergence, but finding the appropriate time to avg into a large short position and cashing out on the late day tank.

    When money is "lying in the corner" it's only appropriate to take a bunch.
  3. I realize this is a widely held notion, but it is incorrect. One doesn't have to look any further than the massive late 90s rally to see VIX climbing right along with SPX for extended periods.
  4. Notice the VIX rising as the DOW approached 9000 and the S&P approaches 1000? There you go....there's your answer right there. The VIX is a measure of implied volatility. It's not just as simple as it being "inversely correlated" with the market. When the possibility of a big move is approaching whether to the upside or the downside, the VIX is going to rise. So...we might see a break through a psychological resistance point and another hard rally...that's why I think the VIX was actually rising today.
  5. Not to mention it also rose right before this huge extended rally began too.
  6. Vix is about 88% inversely correlated to the S&P futures, so this happens. It also occured last week one day close to options expiration.

    All the vix does is measure volatility... and volatility can occur in a uptrend (although 88% of the time it does in a downtrend).

    The rise in volatility during this mornings rally (led by Russells and S&Ps), S&Ps and Dow (9000!) which are now at highs joining the Nasdaq futures, could suggest that undecided players "chased" the market to buy at this level.

    Today was a weird day because financials were very crappy in the morning, but then the BKX caught up and started making highs. JPM an GS were stellar, while WFC sucked and finished negative for the day. Some oil stocks also didn't fair too well (oil trade has been retarded in relation to crude prices). Another anomaly is the drop off the Euro in the mid-afternoon session, which generally brings down the futures, but neither budge.

    In summary, today was a anomaly day and people were have decided to buy while chasing the rally. This caused volatility, hence the spike in the VIX. Also refer to the daily chart and you will see the VIX broke the 2009 lows.

    Let's see what happens with this rally. Nasdaq is up 12 days in a row. MSFT reported very bad earnings... AMZN and BIDU also dropped. EBAY did well. I would bet the Nasdaq will close lower based off the MSFT disappointment. Not as much notable earnings tomorrow, but next week will be equally crazy.
  7. piezoe


    Thank you all so much for your incite, and intelligent, and above all, useful responses.
  8. It was the massive put buying going on today. Large, large sized put buying at the $95 strike for Dec SPY. Over 122K contract volume at that strike.
  9. i agree. vix at long term resistence (static and dynamic) move upward due
    to renewved volatility in stocks

    may the rally will be strong

    a long straddle can be a good choice