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I think VIX may actually be more of an "environmental" market sentiment
measure than just a mere measure of option premium. I agree with
many of the VIX posts to trade off VIX alone would be myopic. I do
believe, however, that the market moves through periods of a changing environment.
<P>In the late 70's a VIX(had on existed)in the 30% may have been a "fair"
measure. In the early 90's 30% would have been obscene. In
fact the market may be much more volatile today than at any time in the
past.....too many reasons to post but IMHO it has lot to do with the huge
decline in transaction costs and the impact that individual investors now
have have on actual volatility.
<P>What would genuine be interesting might be to examine VIX from a historical
perspective. Not what the market did when VIX changed and draw a
historical persepective...because I don't believe we are comparing apples
to apples...BUT rather the spread between actual volatility and VIX and
draw a HISTORICAL perspective from that VIX.
<P>IMPLIED VOL..which is what VIX is calculated from is much much much
more than a pure mathematical concept...it is a sort of garbage salad of
beliefs....fears....views and most importantly a measure of the DIFFICULTY
OF OPTION TRADERS TO EFFECTIVELY COMPLETE THERE HEDGING ACTIVITIES and
that value is clearly the highest(most difficult)it has ever been..{again
IMHO this comes back to the proliferation of electronic trading systems}.
<P>Another important point is that obviously no one indicator will ever
allow any of us to mechanically turn off our TRADING BRAIN and just trade
and I know nobody implied that we do that.
<P>In my view VIX has always been a weather report on the forward market.
In the current environment I view a VIX of 18 - 20 % as a precursor to
a selloff. Yet I would view a VIX of 15 16
17 or lower as circumstance under which I would "bet the farm" personally.
Having said that a month from now I might view these VIX levels totally
differently. I would have absolutely viewed them differently even
just 2 years ago. I'm one of the folks who was shocked to see the
rally of 97 and the rally so far this year at VIX levels what they were.
Yet if I can find a tool that will help make me money I'll adapt in a heartbeat.
<P>Gary Funck wrote:
<BLOCKQUOTE TYPE=CITE>On May 23, 7:48am, THE DOCTOR wrote:
<BR>> Subject: RE: MKT VIX LEVELS
<BR>> This week's Barrons has an article on VIX levels and what they may
mean to
<BR>> the market. When you get a chance go to "THE STRIKING PRICE"
column.
<BR>> You can read it online at www.interactive.wsj.com and I think there
first
<BR>> couple of weeks are still free or obviously you can just get Barrons
on the
<BR>> newsstand. The fellow quoted "Leon Gross" at SalomonSmithBarney
is
<BR>> probably the sharpest derivative analyst around. I steal from
Leon every
<BR>> chance I get.
<P>Leon points out that some major tops in the market have been made
<BR>recently when VIX dropped below 19. Since VIX tends to do drop
<BR>as the market is climbing (maybe due to less premium pressure
<BR>caused by buying puts), and 19-ish has been the low point, that's
<BR>not too surprising.
<P>However, I think artificially deciding on a level of VIX for buy/sell
<BR>doesn't work well. VIX traded down below 10 in late '94, early
'95.
<BR>Here's a recent chart, courtesy Yahoo! that shows VIX over the past
<BR>year, vs. the S&P 500:
<BR> http://quote.yahoo.com/q?s=^VIX&d=1ys
<BR>and the past 5 years:
<BR> http://quote.yahoo.com/q?s=^VIX&d=5ys
<P>--
<BR>| Gary Funck, Intrepid Technology, gary@xxxxxxxxxxxx, (650) 964-8135</BLOCKQUOTE>
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</x-html>From ???@??? Sun May 24 12:49:12 1998
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Subject: MKT - VIX Levels
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One more perspective on VIX. There is no question that something of
significance is imminent as regards VIX levels. The contracting pattern in
the center plot has not been seen for some time. It actually gives a neutral
picture of the market at the moment and is neither overbought or oversold on a
16 trading day basis. The MVI AMA indicator is a derivation of the MVI as
presented in TASC back in April 1995. Start there for the research. The
upper RSI plot is just the 5 day RSI of VIX. The upper plot is closer to the
sell band than the buy band, but there is still room for the index to move up
and the VIX to decline before the sell actually is triggered. This would fit
in with Jerry Favors statements on CNBC on Friday about this being a 4th wave
consolidation and the fifth wave is about to occur prividing the lows of last
week are not taken out.
BobR
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