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If you are going to speculate in options, then taking a contrary view can be a
fortuitous experience. Take for example this weekend's article in Barrons on
the VIX levels. The contention was that dips in VIX below 20% have preceded
mkt drops the following week. To trade on that fact alone is suicidal. A
look at a multiyear chart is instructive. VIX followers know for a fact that
the VIX is a mirror image of the OEX on a short term basis and trade off of it
accordingly as Buch Gitanshu illustrated on RT last week. I.E., OEX rises,
VIX drops. OEX drops, VIX rises. On a longer term basis the VIX has had an
upward migration. Consider this for a moment. From 1992 to 1995 VIX ran
under 13% except in corrections in which it rose to 17%. Since 1995 VIX has
risen to a peak of 30% on a closing basis and 50% intraday. That was in the
fall of 1997. Since then VIX has been declining. Now then, this next week we
do have something of significance about to occur as the equity indexes
complete the price consolidation of recent weeks. If the very respectable
Sherman McClellan of McClellan oscillator fame is correct, then the summer
rally is about to begin any day and you will see VIX levels drop below 20% and
not rise again until sometime in the summer. Anyone buying puts per the
Barrons article will only be feeding Max Ansbachers pockets. This time the
VIX might just continue on down to more historical levels in the teens.
The second point of contention in the artical is that the NDX options were
less expensive than the blue chip index options. Attacted on a post following
this post is a chart of the implied and historical volatility for the NDX. If
anything, they are slightly more expensive.
As a final note, May 29th is targeted as a high energy point for S&P500.
Remember, the mkt can crash upwards as well as downwards.
BobR
http://www.oextrader.com/momentum/momentum.htm
May 29 is designated as an energy point in the recent issue of PulseRate.
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