VIX 01 (Jun 09 - Oct 11)

[winston]

Weekly Review

VIX. The VIX dove 10% on Friday. A big, strong move by the stock market, but it was really a volatile session. It spiked early and reversed as the market rallied. What does this mean? Remember, look how the VIX did not ramp up during the selling.

It basically held the prior peaks, and that tells you there is not the kind of fear in the market that will lead to a major selloff. Some would say that means there will not be any upside movement, but that is incorrect. The VIX can go low for a long time, yet the market rallies and rallies.

Now the VIX is trading in a trading range just as the index has been trading in a trading range. This is a big move. It is a move that could mean we have a break in volatility, but we have to watch when it gets down to the levels from July and August.

If the stock market stalls at that level, we will start watching to see if the stock market stalls when volatility gets down to that level.

That is exactly where it stalled before, and the markets are in a trading range until they prove otherwise. That is what volatility is telling us right now.

VIX: 24.45; -2.92
VXN: 26.31; -2.57
VXO: 24.91; -2.47


Source: MarketFN.com

[winston]

Don't Be Fooled by the VIX

On Monday, the CBOE Volatility Index (VIX) opened up about 5%. The market did open slightly lower, but basically hovered close to unchanged for the first few hours of trading. Yet the VIX held onto its gains.

So is this another sign of impending doom we can file alongside the steep VIX futures term structure and the heavy skew toward out-of-the-money (OTM) puts?

I think not. I believe this is a confluence of quirks that would lead one walking into the market today to see fear where not all that much exists. But you have to go back to Friday to put this in better perspective.

A trader on Friday afternoon does not want to pay full fare for an option knowing he faces three days of price decay before the market re-opens on Monday. So he lowers his bids a smidge.

The VIX estimates the volatility of a hypothetical S&P 500 (SPX) option with 30 days until expiration, but a trader in the real world would view that option as if it only had 27 or 28 days remaining. That has the effect of lowering his bid on Friday, in volatility terms.

We come back Monday, and voila, it's three days later on the actual calendar, but maybe zero or one day later as far as the options trader is concerned. He has already priced in the weekend decay on Friday, so the SPX option itself might not be much lower in actual dollars. But it's higher in volatility terms and, thus, translates to a higher VIX on Monday.

This doesn't always happen. We get some scary Friday declines, and at those times, traders are less concerned with a few days of decay than they are with a big Monday gap. In fact, you see almost the diametric opposite on those Fridays as the VIX goes into overdrive. But, in the absence of that sort of nervousness, we tend to see Friday VIX dips and Monday VIX strength.

http://www.thestreet.com/story/10847569 ... L_atb_html

[kennynah]

The VIX estimates the volatility of a hypothetical S&P 500 (SPX) option with 30 days until expiration, but a trader in the real world would view that option as if it only had 27 or 28 days remaining. That has the effect of lowering his bid on Friday, in volatility terms.

We come back Monday, and voila, it's three days later on the actual calendar, but maybe zero or one day later as far as the options trader is concerned. He has already priced in the weekend decay on Friday, so the SPX option itself might not be much lower in actual dollars. But it's higher in volatility terms and, thus, translates to a higher VIX on Monday.

herein lies the danger of reading and believing blindly these articles...

the reality is that weekend decays are factored in as early as Thurs and sometimes Wed by market players...

for a successful trader, it pays to modestly hold on to this thought..."what you can think of, others can think of earlier"

[winston]

Weekly Review

VIX: 21.31; -1.88
VXN: 21.95; -1.98
VXO: 20.24; -2.63

VIX. There are some interesting points to take from the VIX. When the market was selling, VIX never went that high. There was not a lot of fear. Some would read that as complacency and that the market is not going to rally with that.

But the way I looked at it and what was successful in July when we were looking at it as well the market sold off in July, but volatility did not spike at all. That told us to get ready for another rally, and we had that.

Then it happened again. We had volatility, and it did not spike during the selling; indeed, it held the same range. That was another indication that we would not get a big selloff.

Sure enough, that did not happen. We got the rally, and that did gap volatility down on Friday and took it below the recent lows in July and August. Maybe it falls from here. That would not be a bad thing because the market can rally while volatility trades at low levels for an extended period of time.

It did it for years in the early 1990's. Just because volatility is down does not mean you automatically have a selloff. You have to line up all the other factors volatility is just one part of the mix.

Source: MarketFN.com

[kennynah]

rear mirror report...useless...

[winston]

rear mirror report...useless...

Is there anything that we can conclude from the current VIX movement ?

[kennynah]

my view...down some more..

a) daily vix shows a downward bias but stochastic is almost oversold
b) weekly stochastic shows a possible uptick
c) monthly stoch favours further downward push

this morning, vix collapsed below 200MA currently, this could change in the course of the day, but downward bias as of now...

what's your view?

[winston]

Thanks K. I dont follow VIX that closely but from the current movement, fear does not seemed to be in the air, despite the timely appearance of the Dr. Dooms, Dr. Glooms and Dr. Deaths

[kennynah]

no need kayki boss...and you'd know that i've been wrong on many occasions on my tech reading

[winston]

Trading Alert: It's Time to Buy Some Insurance By Jeff Clark

Here's something for the bulls to worry about…

This is a chart of the Volatility Index (VIX). The VIX is often used as a measure of fear or complacency in the stock market. As the VIX rises, it indicates increasing fear and nervousness among investors. A falling VIX indicates investors are growing more comfortable with the stock market.

The blue lines on the chart are Bollinger Bands. Bollinger Bands compare volatility and relative price levels over time. They attempt to illustrate the maximum probable range of prices for a stock or an index. If you plot a chart of any stock against its Bollinger Bands, you'll find the stock stays within the bands the vast majority of the time. It is rare for a stock to close outside the bands. When that does happen, it indicates an extreme condition.

As you can see from the above chart, the VIX closed Friday below its lower Bollinger Band. In other words, the VIX – the market's best measure of investor fear – is extremely oversold. Investors are too complacent.

Really?

Talk about a head-scratcher. Just last week, everybody was worried about the potential for a stock market crash. The American Association of Individual Investors reported its highest percentage of bearish respondents since March 2009. And now the VIX is oversold?

Could it be that while everyone seems to expect the market to crash, nobody is afraid of it happening? Or has the 5% rally over the past three trading days been enough for investors to gain confidence in the market once again?

Who knows?

All I know is that whenever the VIX closes below its lower Bollinger Band, the stock market makes an important intermediate-term top within days.

Take another look at that chart of the VIX. Then, take a look at this chart of the S&P 500…

The circles on the S&P chart correspond to the circles on the VIX chart. They indicate the days when the VIX closed below its lower Bollinger Band. Notice how the stock market peaked shortly afterward… and was followed by a rather dramatic decline.

Will the same thing happen this time? Who knows? Nothing is guaranteed. But since the rally over the past few days has eliminated the market's oversold condition, spanked the overly aggressive bears out of position, and is now bumping into resistance, it's probably a good idea to buy some insurance.

After all, with the Volatility Index oversold, put options are cheap.

http://www.growthstockwire.com/