This is intended to be a forum for me to post chart ideas and hopefully receive feedback and stimulate discussion.It is not intended to constitute investment advice.
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.
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.
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
The VIX only measures implied volatility of at the money options. As a result, it is literally meaningless.
ReplyDeleteA 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!
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.
ReplyDeleteI am adding this post from Vegaman ,from Daneric's site
ReplyDeletevegaman2k
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