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VIX
 

The Hindenburg Is Back - Play The VIX?

Edmundo Braverman's picture
ST
(Human, 14,707
 
Points)
 on 6/3/13 at 8:04am
hburg.jpg

We might see some slop in the market today, because our old pal The Hindenburg Omen made another appearance before the close on Friday, sending the Dow down a healthy 208 points. It's the second time this year the Omen has been logged, but so far there hasn't been any lasting damage. In fact, for all the times it's been tripped over the past four years, nothing has really come of it.

But it's fun for the permabears to talk about, and a 200-point drop in the last hour of trading is bound to get some chins wagging on CNBC. So far, however, most of the stocks I follow are up pre-market. Still, some believe the Omen is a harbinger of a major crash.

While the Omen foreshadowed significant drops in 1987 and prior to the 2008 financial crisis, it has proven to be a false alarm more often than not. Significant stock-market declines have followed the indicator just 25% of the time. For instance, the technical signal flashed in August 2010, when the Dow was trading in the low 10000s. It has since rallied more than 5000 points in less than three years.

Is VIX the Play for 2013?

Edmundo Braverman's picture
ST
(Human, 14,707
 
Points)
 on 2/5/13 at 7:16am
VIX.png

I remember the summer of 1998 when crude oil was putting in new lows almost daily. At one point it went below $12 a barrel, which is roughly what it cost at the time to pull it out of the ground. Think about that for a minute: for a brief time oil was worth more right where it was beneath the Saudi sand than it was in the tank of your car. I remember going over Unleaded Gas charts with clients and telling them, "You see where the lowest point gas has been in the history of trading on the chart? Yeah, take your pen and make a mark on your desk about two inches below the sheet of paper, cuz that's where it's trading right now."

It's easy to look back on that time and say, "Well, duh. Of course you should've been buying. How much lower could it go?" and you'd be right. (just for your reference, gas at the pump was as low as $.70 a gallon in some places) But I can tell you that it wasn't an easy sale for a lot of people. It was just so low that many clients, some pretty sophisticated, wanted nothing to do with it. Fortunately I built a huge position and it began the roll that led to my retirement a year later.

I'm starting to wonder if we're not seeing a similar opportunity in today's VIX. The VIX has been stupid low for the past couple years. Even after yesterday's 14% jump, the VIX remains below its 50 and 200 day moving averages. With the market putting in 6-year highs and rallying more than 5% YTD, I wonder if everyone has been lulled into a false sense of security and is about to lose a big chunk of their ass to the bite of the VIX.

VIX Index

JasonLoh's picture
ER
 
Points)
 on 1/20/13 at 12:49am

Hey guys! The VIX index have hit an all time low since 2007. I am wondering on how this situation would affect your trading decision?

Personally, I am preparing to load up on some out-of-the-money, years to maturity S&P index options, being bullish and all.

How about you?

Silver banana: Why did the VIX go down today?

onedumbmonkey's picture
 
Points)
 on 9/7/12 at 1:12am

Can someone please explain why the VIX went down today even though market volatility went up?

I know that the VIX is based off the implied volatility of S&P 500 index options, so on a big up day shouldn't that send the VIX up too? It seems that latly the VIX only goes up on a bear market day...

Can someone please explain? Silver Banana for the best explanation!

Thanks

What Is The VIX?

The VIX is an index which measures expected volatility on the S&P500 for the next 30 days. It can be traded like an asset on the Chicago Board Options Exchange. It is calculated from the trading of options for the next 30 days. For example, if a large amount of calls and puts with exercise prices a long way away from the current market prices, then the expectation is that there will be volatility and the VIX will be high.

Generally speaking a VIX higher than 30 implies high volatility whilst a VIX below 20 implies stability.

Related Terms

Investing in Volatility

pfassoc's picture
IB
(Chimp, 9
 
Points)
 on 1/11/11 at 10:43am

I'm looking for any articles or guides that explain in a practical manner how to invest in a portfolio of options such that you obtain only a long exposure to volatility index. I've looked into the VIX Futures, but for several reasons these are not an ideal way to obtain exposure to volatility over the long-term. I've read several academic articles by Derman, Whaley, etc., and my understanding of how this works is that you must take a long position in S&P500 index options, and then delta hedge this position.

What I'm after can be boiled down to three things:
1) The specifics as to the composition of the long index option positions (what type of spreads/straddles, weighting by strike price, maturity, etc.);
2) The required frequency of adjusting the delta hedge; and

Vice Psych: How one man banks of fear and loathing

Midas Mulligan Magoo's picture
 
Points)
 on 11/29/10 at 12:16pm
vice

I recently sat down with my friend Kent and listened to his familiar rant.

Markets are about feelings. Are you in touch with your's Midas?

Kent's got a Master's in Psych. He's never worked a day in finance. Kent is one of the most successful investors I have ever met.

Kent's magnum opus on investing comes up in the news from time-to-time. He's a VIX man thru and thru. Playing off volatility, which he reasons is caused purely by psychological factors.

VIX Options - Hedging or Trading Instrument

deltahedge's picture
O
(Monkey, 57
 
Points)
 on 5/25/10 at 7:47pm

Any ideas how I can best use VIX options as a hedge in an option portfolio to offset my short vega positions (i.e. butterfly and an iron condor)?

Right now I have a fairly small income trading option portfolio ($20-30K) and am examining ways to use the VIX either as a hedging tool or perhaps as a trading instrument when IVs jump through the roof. Some had suggested to use VIX ETFs as a way to trade the VIX, but others had suggested they had actually received a lot of flak for inaccurately being able to track the VIX and that VIX futures was the best solution to take a position on the VIX. My question is has any one considered options on the VIX as a way to either hedge or place a bet on it? I know VIX options are a bit skewed in the sense that they price a reversion to a mean volatility level.

Any help would be appreciated.