OK let me take one final stab at summarizing my point on this Magical 37 VIX Tick.
I know I am fixating, but they have refered to it so often on TV it's like a Talking Point, "true, because we say it alot".
The VIX is just a volatility statistic made simple for everyone to see on their screen. It's just a snapshot of the volatility of one index. It is not even the only way to measure volatility on that time frame, even on that same exact index. You could hit up SPX 30 day implied volatility on ivolatility.com and see the same basic pattern, but very different numbers (it peaks much lower, for example). Their methodology is proprietary, but I believe the VIX includes more ATM options. Neither is correct per se, it's just different.
I traded options on the AMEX for 13 years and could honestly not tell you anything about the VIX from those days. If we had it on our screen it was by and large ignored. You didn't need it, you had a whole portfolio of options positions that told you exactly what was going on with volatility. Unless you are immersed in options, you are not going to do that, so hence the VIX was born.
I am in no way shape or form saying I expect the SPX to go back to Tuesday's lows any time soon.
What I am saying is there's nothing magical about the fact that the SPX turned when the VIX blipped at 37. By the same token, the next "bottom" may happen with a VIX well lower than 37. The tick there was a blip thanks to wide quotes at a disjointed open (there were many stocks that had not begun to trade yet). If the VIX only clicked up to 32 or 34, the "bottom" we formed would be just as meaningful.
Too much was made of all this by too many people who's understanding of volatility is very limited.
12 comments:
FWLIW, you have my full agreement on the magic 37, Adam.
Regarding the VIX, those guys need a better defense. They can't afford to be giving up so many points.
Finally...and my real reason for clogging up your comments box, does your reading of the options activity in MBI, ABK and any of the other bond insurers tell you anything about the likelihood of a deal being finalized over the weekend?
Hey Adam
What does Steve Smith say about buying options in his rm article? I dont have a sub
thanks
Bill: Thanks, great minds think alike.
And then there's us, lol. I don't see much of anything in the ABK's. Not terrific volume and volatility trickling down a bit. Feels like they'll just come up with some 'plan" and it will get dormant (just my guess, i feel like i missed any play to be had in here).
James: Steve's saying he likes long gamma/volatility here as he doesn't expect it to just settle in.
Bill: Thanks, great minds think alike.
And then there's us, lol. I don't see much of anything in the ABK's. Not terrific volume and volatility trickling down a bit. Feels like they'll just come up with some 'plan" and it will get dormant (just my guess, i feel like i missed any play to be had in here).
James: Steve's saying he likes long gamma/volatility here as he doesn't expect it to just settle in.
I do reckon a volatility contraction that brought the vix 10% below the 10 day ma would be a short sellers delight. Seems like we are destined for a high volatility environment be it bullish or bearish.
yes, i would agree. That 10% rule works best in counter-trend situations. A volatility dip like that in an "up" market is generally a useless signal, if you assume this was a rally in a down-trend (which seems a safe asssumption until proven otherwise) a VIX selloff could be a good signal.
Bottom Line: The average Joe six pack is a baby boomer quickly running out of time. His single largest asset, his primary residence, is deflating rapidly. This single largest asset is also the primary collateral for his single largest liability. His balance sheet is rapidly deflating as all his assets, from his home to his equity portfolio, all simultaneously deflate while his debt outstanding may actually still be increasing. His debt servicing are costs not dropping, despite aggressive rate cuts, and may actually be rising. It has also become damn near impossible to refinance certain mortgages as easy credit evaporates. On top of that, Joe six pack should now be seriously concerned about his job security. So when a cheque for $300 to $1500 arrives in the mail, Joe six pack is not going to spend it on a $200 steak dinner or a new computer or on a vacation. Got it people?
More on the stimulous package: (http://benbittrolff.blogspot.com/2008/01/fact-sheet-bush-stimulous-package.html)
TheFinancialNinja
um, I may be a little more optimistic, lol.
Joe six pack will almost certainly blow his refund on a box full of pinwheels and oversized foam cowboy hats...just the essentials. Joe six pack is stupid. That's almost the only thing we know for sure.
He probably watches too much Mad Money, lol.
Hey Adam - what crowds were you in? I was there from '96 - '03 and don't recall your name. Have you been there recently?
I was there from '88 to 2001. In the time you were there I was mostly in the Cat-American Home Products, Fleet Bank crowd. Spear was the specialist, it was directly behind the Apple crowd.
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