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Post by Emperor AAdmin on Mar 19, 2008 23:45:14 GMT -5
Easy to read (<=decreasing)(>=increasing) >Volatily=<price <Volatility=>price (to put is simply, volatility goes opposite of price movement)---- finance.yahoo.com/q?s=%5EVWBCBOEMarketVolatility-SPXBidPric (^VWB) finance.yahoo.com/q?s=%5EVWACBOEMarketVolatility-SPXAskPric (^VWA) ----- finance.yahoo.com/q?s=%5EVIXCBOEVOLATILITYINDEX (^VIX) *here one can see a long term chart and compare. ----- IX ‘anxiety’ levels:
* 5-10 = extremely low anxiety = extreme complacency * 10-15 = very low anxiety = high complacency * 15-20 = low anxiety = moderate complacency * 20-25 = moderate anxiety = low complacency * 25-30 = moderately high anxiety * 30-35 = high anxiety * 35-40 = very high anxiety * 40-45 = extremely high anxiety * 45-50 = near panic * 50-55 = moderate panic * 55-60 = panic * 60-65 = intense panic * 65+ = extreme panic
www.finaxyz.com/vix.htm
------ For the latest information on VIX changes at CBOE www.cboe.com/www.cboe.com/micro/vix/introduction.aspx-------
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Post by Emperor AAdmin on Mar 19, 2008 23:47:46 GMT -5
VIX - CBOE Volatility Index
[NOTE: This page was written for the "old" VIX which was based on options for the S&P 100 index (OEX), but on September 22,2003 CBOE upgraded to the "new" VIX which is now based on the more popular S&P 500 index (SPX). I am still investigating the switchover and how it relates to interpreting historical data. The concepts of the new VIX are the same, but the historic levels of fear may no longer be valid. Most web sites now use the VIX symbol to refer to the new (S&P 500) VIX, but the old (S&P 100) VIX is still available as symbol VXO.]
The Chicago Board Options Exchange CBOE Volatility Index (VIX), also known as the CBOE Market Volatility Index, sometimes referred to as the "Investor Fear Gauge", indicates the level of anxiety or complacency of the market. It does this by measuring how much people are willing to pay to buy options on the S&P 100 index (OEX), typically 'put' options which are a bet that the market will decline.
Sophisticated investors buy S&P 100 index 'put' options to protect their stock portfolios against a market decline (so-called "portfolio insurance") or even to speculate that the market may decline. If the market does decline, the value of the put options increases, compensating for the lose of value in the stocks. You could buy put options for each stock in your portfolio, but that's more expensive and tedious. Options on the S&P 100 index are more readily available and the market for them is more 'liquid', meaning they can be bought and sold more quickly, especially in large volumes.
There are a number of factors that go into the pricing of options. One of them is 'volatility'. It's simply the extent to which the price of something has changed over a year, measured as a percentage. An option on a more volatile stock or future will be more expensive. But options are just like any other asset and as really priced based on the law of supply and demand. If there is an excess of supply compared to demand, the price will drop. Conversely, if there is an excess of demand, the price rises. Since all the other parameters of the option price are predictable or measurable, the piece that relates to demand can be isolated. It's called the 'implied volatility'. Any excess or deficit of demand would suggest that people have a difference in expectation of the future price of the underlying asset. In other words, the future or 'expected volatility' will tend to be different from the 'historic volatility'.
The CBOE has a rather complex formula for averaging various options for the S&P 100 futures to get a hypothetical, normalized, 'ideal' option. The volatility component can be isolated from the the price of this ideal option. That's VIX. Although both 'put' and 'call' options are included in the calculation, it is the 'put' options that lead to most of the excess demand that VIX measures.
VIX is a good surrogate for market sentiment. When everything is wonderful in the world, nobody wants to buy put insurance, so VIX falls. But when it looks like the sky is falling, everybody wants insurance in spades and VIX heads for the moon.
Values for VIX tend to be between 5 and 100. Even in the most idyllic of times, VIX may not get below 12 or 13. And even in the worst of panics, in 1998, VIX did not break much above 60. The all-time high was 172.79 during the market crash in October 1987.
VIX tends to move opposite the market. The market goes up and VIX goes down. The market goes down and VIX goes up.
VIX is viewed as a 'contrarian' indicator'. Higher values (when the market is way down), such as 40, can represent irrational fear and can indicate that the market may be getting ready to turn back up. Lower values (when the market is way up), such as 14, can represent complacency or 'irrational exuberance' and can indicate the the market is at risk of topping out and due for a fair amount of profit taking. There's no guarantee on any of this and VIX is not necessarily by itself a leading indicator of market action, but is certainly an interesting indicator to help you get a sense of where the market is.
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VIX ‘anxiety’ levels:
* 5-10 = extremely low anxiety = extreme complacency * 10-15 = very low anxiety = high complacency * 15-20 = low anxiety = moderate complacency * 20-25 = moderate anxiety = low complacency * 25-30 = moderately high anxiety * 30-35 = high anxiety * 35-40 = very high anxiety * 40-45 = extremely high anxiety * 45-50 = near panic * 50-55 = moderate panic * 55-60 = panic * 60-65 = intense panic * 65+ = extreme panic
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You can feel fairly comfortable if VIX is moving in a range between 18 and 27.
Some traders believe that the "long-term average" for VIX is around 22.5. In a purist sense they are right, but that includes the crazy spikes and fails to subtract out an 'extra premium' that seems to have gradually built up from 1994 until the market peak in 2000. Since that peak has fallen, the extra premium should be taken out. In fact, we should probably subtract out an additional premium to account for the dramatic fall of the market since 2000 -= the flip-side of the premium that built up from 1994 to 2000.
VIX can occasionally 'spike' or move up very rapidly as people receive a sudden shock. But frequently people over-react and VIX quickly settles back, at least somewhat.
It a true crisis, it's not uncommon for VIX to have a 'spasm' of spikes, each higher than the previous as anxiety increases with the severity of the crisis. Perceived severity that is. Many people on Wall Street subscribe to the "If there's smoke, there's fire" philosophy and "head for the exits" at the first hint of trouble. Cooler heads tend to take advantages of those over-reactions and bring the anxiety level back down. But when real events do suggest that anxiety should be higher, VIX will rise again, this time to a higher level. This cyclical process continues until the perceived anxiety matches the actual crisis. Many crises are resolved in short order, so VIX will spike up and then come back time. But the resolution of a crisis may take days or weeks or even months to resolve to the market's satisfaction. VIX was above 30 for several weeks in the Fall of 1998.
Market observers sometimes refer to a spike in VIX as an indication of a 'capitulation'. When it looks like the sky is falling everybody who is likely to sell has done so. Or they bought S&P 100 index 'put' options to protect themselves against a further decline. But if all the sellers have sold, there's nobody left to sell. It's only selling that makes the market go down. And there're enough optimists to buy any dip. It's also called an 'exhaustion of selling'. This is considered a sign of a 'market bottom'. But a market bottom may not be a final market bottom. That's why you see a spasm of VIX spikes and not just a single sharp spike. It may just be a ledge on the way down even further. There will always be optimists that jump the gun before it's really time. For a true bottom and ultimate capitulation, there really needs to be some kind of good, soothing news that leads people to believe that yes, the worst really is past.
Traders may also you relative changes in the level of VIX as a 'signal' for buying or selling. If if VIX does not hit a very high or very low level, traders might simply note that it has moved more than 10% or 20% and use that to suggest that a rally or correction could soon run out of steam soon. In other words, a way of sensing whether the market has moved too far (up or down) too fast to continue in that direction much longer, at least in the short run.
You can actually get a quote for VIX. Unfortunately, since it's not an actual stock, each quote system has it's own special notation. Some actually use VIX as the symbol, many do not. You just have to use trial and error to find it. The other variations are VIXX, VIX.X, and ^VIX.
There is also a parallel Volatility Index for the Nasdaq-100, called the CBOE Nasdaq Volatility Index, with symbol VXN, but I do not yet have a model for the various fear levels since VXN has only been available since January 2001.
www.finaxyz.com/vix.htm
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Post by Emperor AAdmin on Mar 20, 2008 0:02:53 GMT -5
VIX index is increasing with amazing speed (*BAD THING) since early 2007 in what appears to be a clear uptrend that doesn't seem to be weakening. finance.yahoo.com/q/bc?s=%5EVIX&t=my
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