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It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Henry Ford


Those who surrender freedom for security will not have, nor do they deserve, either one. Benjamin Franklin
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The idea that you know what is true is dangerous, for it keeps you imprisoned in the mind. It is when you do not know, that you are free to investigate. ~ Nisargadatta Maharaj

Friday, 17 February 2012

2 charts from Joanne Klein's public list




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3 comments:

  1. Anonymous18 February 2012 at 20:00

    The VIX only measures implied volatility of at the money options. As a result, it is literally meaningless.

    A far better indication of "risk" is the SKEW, which measures the difference between implied volatility of at the money options vs out of the money options.

    Only noobs and commentators on CNBC fall all over themselves trying to analyze the VIX. For the reasons above, it is a waste of time.

    The SKEW is the key!

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  2. Chartrambler19 February 2012 at 00:13

    It seems to correlate pretty well on Joanne's chart.Also I know Ron Walker uses it and he is no "noob". I also understand that monthly macd signals "shouldn't" work but they do.I will go for pragmatism every time.Thank you for your input.

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  3. Chartrambler25 February 2012 at 15:50

    I am adding this post from Vegaman ,from Daneric's site

    vegaman2k
    1. Actually the vix does include options out of the money. See page 4,5,6 from this document
    http://www.cboe.com/micro/vix/...
    2. It also has a bit of term structure embedded in the price.
    3. Last year when the Market topped early may, spot Vix was about 15, Vix future 2/3 months out was at 20. Today spot VIX is at 17.5, and the 3 month future is at 25.7, so the market is paying up for longer term options compared to May 2011.
    4. At the May top 30 day historical volatility was at 9.4%, but vix was at 15%, a 5.6 point premium. Today 30 day Historical vol is at 8.4% but vix is at 17.3%, almost a 9 point premium. In other words options are trading rich relative to realised vol . As a vol or gamma trader you'd only be buying short dated options here if you thought realised vol would pick up very soon.
    5. Implied correlation is still over 70, it has come off a lot (from 85/88 in October), but needs to be in the 50/60 range to signal excessive complacency. The 2011 top and flash crash launched from very low levels of implied correlation.

    Bottom line, the options market is not as complacent as it looks at first glance

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