VIX 01 (Jun 09 - Oct 11)

[winston]

VIX Futures Show Lingering Risk of Stock Swings: Chart of Day By David Wilson

Oct. 23 (Bloomberg) -- Investors are guarding against renewed volatility in U.S. stocks even though a so-called fear gauge shows they have overcome the panic resulting from last year’s credit crunch.

The VIX index, an indicator of expected swings in the Standard & Poor’s 500 Index, closed yesterday at its lowest level since Aug. 29, 2008. The VIX fell 6.9 percent to 20.69, about half a point above its average since the Chicago Board Options Exchange’s calculations began in 1990.

As the CHART OF THE DAY shows, though, the gap between the index and VIX futures is wider than it was almost 14 months ago. The contracts closest to expiration settled yesterday at 23.65, or 2.96 points higher than the index’s value. The differential was just 1.05 points at the end of August 2008.

“Heavy hedging activity” accounts for the wider gap, according to a report yesterday from McMillan Analysis Corp.’s Option Strategist Hotline. The VIX itself has to surpass 24 to signal an increase in stocks’ volatility, which tends to occur when prices fall, the report said.

The VIX, more formally known as the CBOE Volatility Index, has tumbled 74 percent from last year’s record close. The gauge peaked at 80.86 on Nov. 20, 2008, when the S&P 500 fell to its low for the year.

http://www.bloomberg.com/apps/news?pid= ... fejrw.XNXs

[kennynah]

i agree that there are signs of complacency among market players....with VIX at ~20, it is relatively low when compared to just 6 months ago and more contrasting when measured against 12 months ago...

a low VIX is usually achieved when there are lesser protective Puts being purchased and more Covered Calls are being sold to generate income from Long stock positions...

but this is not to suggest that VIX cannot go below 20 and stay in the mid teens in the weeks and months ahead...

fyi, VIX is a tradeable index and can be subject to technical resistances and supports...

[winston]

You Won't Hear This on CNBC By Jeff Clark

CNBC is infatuated with the VIX.

The Volatility Index (aka the VIX) is a measure of implied volatility of option premiums. Simply put, it's a measurement of investor fear. If investors are worried about stocks and about the potential for a loss, the VIX rises. As investors get more comfortable holding stocks, the VIX falls.

Last week, CNBC ran dozens of segments on the VIX.

Seriously, by Wednesday or Thursday, it seemed as though every few minutes some talking head on CNBC was spouting off about the VIX making a new low on the year. They viewed this as bullish, since investors were less fearful and, therefore, more inclined to take on risk and buy stocks.

I was looking at something else – the options on the VIX. And those look wildly bearish. Let me explain...

VIX options are different than most stock options in that they're "European" settlement. This means options on the VIX can only be exercised on the option-expiration date – as opposed to "American" style options, which can be exercised anytime. This eliminates the arbitrage potential of buying an option, immediately exercising it, and then unwinding the position for a profit.

So VIX options will routinely trade at a discount to their intrinsic value.

This is why I don't trade VIX options. There's no arbitrage effect and no certainty that an option trading at a discount to intrinsic value will generate a profit.

But I watch the premiums on VIX options because they provide HUGE clues as to where the market will move in the short term.

For example, last Friday, when the VIX was trading at 21, the November 22.50 puts had an intrinsic value of $1.50 – meaning an investor could have bought the VIX for 21 and exercised the right to sell it for $22.50 and pocketed $1.50. That's a guaranteed profit of $50 on each contract under normal circumstances.

The options were trading at $1 – a $0.50 discount to intrinsic value – because the options can't be exercised until the option-expiration date next month. So no one could capture the gain instantly. They'd have to wait and see where the VIX closed on option expiration day in November to determine the profit.

Bear with me, because this is important...

Traders who were buying these options were betting the VIX would be above 21.50 on option-expiration day in November. In other words, even folks who are bearish on the VIX are counting on volatility increasing.

Folks who are bullish on the VIX are particularly bullish. The VIX November 22.50 calls, for example, were trading for $2.50. Traders who were counting on the volatility index rising in value were betting the VIX would be over 25 by option-expiration day in November.

VIX bulls are paying a huge premium for the right to buy VIX at 22.50. And VIX bears are taking a discount to intrinsic value on the puts.

All these traders are betting on an increase in volatility. Increases in volatility are typically associated with declines in the general stock market. So judging by the VIX option market, it's reasonable to expect stocks to come under pressure over the coming days and weeks.

http://www.growthstockwire.com/

[winston]

Use This Important Index to Pinpoint Your Best Time to Profit
by Karim Rahemtulla

There are only two driving forces that move the stock market: fear and greed.

Based on these two hugely influential factors, many investors simply watch the market's daily gyrations and listen to the folks on television scream and shout about it - without offering any solid, profitable advice.

But one index holds all the clues you need.

It's called the CBOE Volatility Index (^VIX) and it essentially measures investor sentiment, based on how options are trading on the S&P 500. It's sometimes referred to as the "Fear/Greed Index" because at specific points in time, the VIX has been an excellent predictor of the market's future direction.

Here's how it works - and how you can use it to your advantage...

What You Should Do When the VIX is High or Low

Want to know the best times to buy and sell stocks? Just look at the VIX...

~ When the VIX is high: Any time the VIX hits 50 points or higher, it usually signals that investors are fearful, or panicking. This is the best time to buy stocks.

~ When the VIX is low: If the VIX drops under 20, or close to the 10-point level, it implies that investors are complacent and you should lighten up on your positions.

So what's going on today?

The VIX currently sits around 25 points - a pretty low level, indicating that the market is relatively stable. However, based on what we've seen over the past few months, it would be ridiculous to imply that volatility has disappeared from the market.

We're clearly not out of the woods when it comes to volatility... yet the market is proving people wrong on a daily basis. So let's turn the tables on the market by using volatility to our advantage...

Source: Investment U

[kennynah]

VIX hit year's low....watch out fellas...

[winston]

Despite all the parrots on CNBC calling for a contagion fallout from the Dubai affair, VIX is still only at 24.74..

[kennynah]

This represents a 20% swing in 1 session. That's quite a move in my books

[winston]

Yes, percentage wise, it's seen a big move. But I'm looking at it from a bigger picture of whether it's big enough to induce a change in direction..

[kennynah]

hahaha.. i've been reading your thoughts about "seeing the picture".. ..

so, what does your picture say about the US market now?

[winston]

so, what does your picture say about the US market now?

I think Dubai is not strong enough to induce a change in direction. It all depends on the Asians and the Europeans on Monday.

If there's another strong correction in Asia and Europe, then it may frighten the Americans a bit.

If the rebound is very strong on Monday, people may sell into that strength.

Intuitively, I think it will be trendless with a slight neagtive bias for a while ..