What the VIX measures DIRECTLY is the demand for options on the S&P 500 vs the supply of those options. In the most true sense, the VIX measures the "price" of those options. If demand for stocks in the S&P 500 rises relative to the supply of those stocks, what happens? The price of those stocks goes up, and so does the index which measures them - the S&P 500. Similarly, if the demand for options on the S&P 500 index rises relative to the supply of those options, what happens? The price of those options goes up, and so does the index which measures them - the VIX. The next question is: What causes the demand for these options to rise relative to the supply? The answer - as shown pretty convincingly by the charts I posted earlier - is "a drop in the S&P 500 causes the demand for those options to rise relative to their supply, and a rise in the S&P 500 causes the supply of those options to rise relative to their demand." The next step is to determine why people want to buy options when the S&P 500 drops, and sell options when the S&P 500 rises. I would argue that it's driven by emotion - fear and complacency. When stocks drop, people get nervous and are willing to spend a little more for insurance. When stocks rise, people breathe a sigh of relief. Others here have argued that it's driven by people's estimate of future volatility. To accept that premise you would have to believe that people's estimate of future volatility goes up each time stocks drop, and goes down each time stocks rise - on a minute-by-minute, tick-by-tick basis. That makes less sense to me than the "fear/complacency" theory.
look at diff components of the OEX 100 Oils are almost on their year highs...so as vix goes up is a measurment "indirectly" of people hitting bids YES they are crushing bids in banks and airlines/ autos but on the other hand...look at the OIH today vs the OIH in Jan or March when we were free falling and the VIX spikeded LOOK at ALL TECH STOCKS (QQQQ) as well relatively speaking relatively speaking its MUCH MUCH higher same with the Ag's of the world, this is NOT A BROAD BASED SELLOFF once the GOOG's , RIG's, INTC's, POT;s have those big -5-10% down days...trust me...u'll see the VIX spike hard (and hopefully create a near term bottom) till then...slow painful grind just my thoughts d
You can break surfâs article to two parts: 1.De facto numbers ( what vix WAS a week/month/year ago) 2.Future âpredictionsâ based on current levelsâ¦a lot of maybes , ifs , âit could get worse â and other unwarranted advises Nuff said
Divergence between S&P and VIX is interesting. If you put the days when S&P and VIX were both up on the S&P chart, youââ¬â¢ll see that this divergence normally (not always) predicts downtrends ââ¬â several days, or even weeks. Look at the dates, when S&P and VIX were both up: 29/10/2007 13/12/2007 24/12/2007 26/12/2007 28/12/2007 13/03/2008 16/05/2008 19/05/2008 27/05/2008 In bullish 2007 the divergence worked not so bright, but mainly it indicated next 2 - 4 bars down. May be itââ¬â¢s simply coincidence...
Well, in bullish 2007 the VIX was mostly dragging along the "hard bottom" of 10%. So I think that distorted the relationship somewhat, as the VIX was not "free" to drop more as the S&P500 went up.
The VIX is looking a little lighter today, n'est-ce pas? None of that "heaviness" we saw Friday. Premium buyers are finally beginning to notice that the S&P is approaching major support. It's also crossed over the futures for the first time in some while, with the VIX now trading above the futures. Just a tiny little premium - nothing yet like what we saw at major bottoms in Jan. and March, when the VIX spiked up to 37% and the futures lagged way behind. My memory is that often there is a major market blowup shortly after the 4th of July. So it could get interesting.
We just released the CBOE Futures Exchange (VIX futures) on DTN.IQ/IQFeed. We also added a few other futures exchanges recently based on feedback from users. For a list of available exchanges, please visit www.iqfeed.net.