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Fear Index Now Inverse To VIX

Tyler Durden's picture


Either the VIX is being gamed by volatility sellers into one of the biggest short squeeze rallies in recent history or the CSFB Fear Index should add the phrase "Lack Of" somewhere in its description. Or is mainstream media simply pumping whatever is the most behind the scenes manipulated index to promote a false sense of calm among the retail population?

Here is a good summary of the Fear Index and the sentiment it indicates:

The CSFB is an indicator specifically designed to measure investor sentiment, and the number represented by the index prices zero-premium collars that expire in three months, Credit Suisse said in a research note issued on Monday.
The collar is implemented by the selling of a three-month, 10 percent out-of-the-money SPX call option and using the proceeds to buy a three-month out-of-the-money SPX put option.
The premium on both sides will be equal, resulting in a term commonly known as a zero cost collar.
The CSFB level represents how far out-of-the-money that SPX put option is, or in insurance terms "it represents the deductible one would have to pay before the put kicks in," Credit Suisse said.
The index would rise when there is excess investor demand for portfolio insurance or lack of demand for call options.
It differs from the Chicago Board Options Exchange Volatility Index .VIX, or VIX, Wall Street's favourite barometer of investor fear, in its use of SPX options and data.
The VIX, calculated from S&P 500 option prices, measures the market's expectation of future volatility over the next 30-day period and often moves inversely to the S&P benchmark.
The VIX is a fear gauge by interpretation, not by definition. "It was designed to quantify the expectations for market volatility -- a property that is associated with, but not always correlated to fear," the note said.
The CSFB provides investors in a transparent way the longer-term sentiment expressed by the institutions and hedge funds that use derivatives to manage risk.
Unlike the VIX, which can whipsaw from day to day as traders respond to transient market activities, "our fear barometer taps the persistent fear levels expressed by the segment of investors that have long-term investment horizons," Credit Suisse said.

h/t Joel


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Wed, 07/29/2009 - 15:18 | 18461 Bryan
Bryan's picture

The VIX is down so low now because there IS no volatility any more.  Notice from day to day as the first hour of trading is up and down, then someone steps in and causes the market to trade in a tight range?  No wonder the VIX is down, but not reflecting any 'fear' in the market.

Wed, 07/29/2009 - 15:20 | 18465 Project Mayhem
Project Mayhem's picture

Since its introduction in 1993, VIX has been considered by
many to be the world’s premier barometer of investor senti-
ment and market volatility. The VIX Index is an implied vola-
tility index that measures the market’s expectation of 30-day
S&P 500® volatility implicit in the prices of near-term S&P
500 options. VIX is quoted in percentage points, just like the
standard deviation of a rate of return. The VIX closing price
in 2005 was 12.07.


Wed, 07/29/2009 - 16:07 | 18541 spekulatn
spekulatn's picture

Here I thought the VIX was introduced in 1988...thanks PM for this teachable moment ;>-~



Wed, 07/29/2009 - 15:33 | 18487 Comrade de Chaos
Comrade de Chaos's picture

"Oil prices were "well overpriced" in the $70s and will continue to weaken in the weeks and months ahead, says James Cordier, President of Liberty Trading Group and co-author of The Complete Guide to Option Selling."

2nd guy calling OIL @ 70 a total BS, wonder if robots are capable of "ducking & covering?"

Wed, 07/29/2009 - 15:42 | 18491 Project Mayhem
Project Mayhem's picture

Check out Rob Kirby's article on oil manipulation -- turns out much of the oil crash may have been caused by USgovt swapping sweet crude for sour out of the SPR -- hence the price inversion of Brent vs. WTI.


Stop the Ponzimonium [and Pawns-a-monium]
Shame on CFTC Commissioner Bart Chilton
BY ROB KIRBY | june 29, 2009


As evidenced above, crude oil has also been swapped – likely sweet crude, WTI - for less expensive sour crude. Under such a scenario physical sweet crude left the SPR, creating a market glut of “premium sweet oil.” This set off an engineered over-supply chain reaction in the crude complex which depressed WTI’s price relative to Brent Crude. Because supply chain storage facilities are finite and were completely filled in the Texas / Cushing region, this also contributed to further price declines in the crude complex.

This would also explain the phenomena of the world’s VLCC [very large crude carrier] Fleet being fully booked for storage purposes while the Baltic Dry Index is at or near record lows.


Wed, 07/29/2009 - 16:06 | 18538 Oso
Oso's picture

ya, not sure i believe that.  why on earth would the SPR be switched into heavier grades of crude?  the whole point of the SPR is to be strategic.  there isnt very much heavy refining capability in the US, and globally, period.  doing this would mean the SPR should be called the Dumb-Ass Petrolum Reserve.

Wed, 07/29/2009 - 16:14 | 18555 Project Mayhem
Project Mayhem's picture

Perhaps.  I've yet to see a better explanation for the WTI/Brent inversion during that time period, nor of the DOE's notification of engaging in 'oil swaps'.

Wed, 07/29/2009 - 15:36 | 18490 Anonymous
Anonymous's picture

go back to the old site

Wed, 07/29/2009 - 15:59 | 18525 Danz Gambit
Danz Gambit's picture

forget it, its done, man up

Wed, 07/29/2009 - 19:16 | 18735 VegasBD
VegasBD's picture

The old site would be censored soon, the dmca notices were piling up.


Ironic that you have to get out of this country to have freedom.

Wed, 07/29/2009 - 15:40 | 18494 novanglus
novanglus's picture

What captures the fear of the investors that pulled out of the market and are sitting in cash?

Wed, 07/29/2009 - 15:50 | 18512 Gilgamesh
Gilgamesh's picture


Wed, 07/29/2009 - 16:01 | 18526 dnarby
dnarby's picture

One way ticket sales out of the country.

Wed, 07/29/2009 - 16:08 | 18542 deadhead
deadhead's picture

NYC is paying for one way airfare out of the city for homeless families.  Article was in the NY Daily News.


Wed, 07/29/2009 - 15:42 | 18497 Comrade de Chaos
Comrade de Chaos's picture


p.s. An interesting chart, the real fear must be somewhere in the middle. It probably indicates that retail & institutions are reluctant to decrease their risk aversion and somewhat lagging when it comes to decision making and timing. However this is my take, and it might be a bit off, since reality at this point is directly correlated to ones' employment & luck rather than possession of sufficient data.

Wed, 07/29/2009 - 15:44 | 18498 i.knoknot
i.knoknot's picture

Good to have another metric for the toolkit, but any indicator that i cannot regenerate from public raw un-manipulable (is that a word?) data sources is barely worth the magnetic material it's written to. As soon as a proprietary indicator gains fashion, the "powers that be" will take hold of the indicator. And why wouldn't they?

Witness CPI, unemployment, VIX, housing prices/starts ... it's all good for the tomato plants.

Wed, 07/29/2009 - 15:46 | 18502 Anonymous
Anonymous's picture


When oil made its last big dip it was when the the CFTC announced that position size was "under review"

That is when the oil speculators left last time.

What happened today?...same headline same result. OIL TANK! Not to mention Goldman came out today Totally against the rule...(STORY WAS ON BLOOMBERG TODAY FOR LIKE A FEW MINUTES AND THEN IT WAS GONE)

We pay at the pump and Goldman collects the money at the Oil pit. That is just another example of how these motherfuckers are able to continue to fleece the American public as well as these other pricks that do the same thing.

Reform needs to start in NY because any reform started in Washington will still be puppets of the big banks.


Wed, 07/29/2009 - 15:58 | 18524 DebtorShredder
DebtorShredder's picture

When do you realize that they don't represent you?

The only thing that changed was the names.


Wed, 07/29/2009 - 21:42 | 18876 Anonymous
Anonymous's picture

so true

Wed, 07/29/2009 - 16:19 | 18560 Anonymous
Anonymous's picture

Bloomberg has been bad for that lately. Can you remember what the headline was or some good keywords to look in google's cache?

Wed, 07/29/2009 - 15:46 | 18503 maximus
maximus's picture

Whatever comes out of these gates, we've got a better chance of survival if we work together. Do you understand? If we stay together we survive.

Wed, 07/29/2009 - 15:48 | 18507 Anonymous
Wed, 07/29/2009 - 15:49 | 18508 Dr Hackenbush
Dr Hackenbush's picture

the squeeze is on - hope no one got suckered. 



Wed, 07/29/2009 - 15:51 | 18514 Alexander Supertramp
Alexander Supertramp's picture

"VIX has become irrelevant as an indicator of sentiment."

No shit, Sherlock.  Caveat emptor to those who ever thought it was (or furthermore that such a thing might even be remotely useful even if it were possible to model).

Wed, 07/29/2009 - 15:54 | 18517 Anonymous
Anonymous's picture

this is the effin correction we have all been waiting for AMEN...btw, did u covered all your shorts yet???

Wed, 07/29/2009 - 15:54 | 18519 Anonymous
Anonymous's picture

3:30 pump is on! S&P500 goes vertical

Wed, 07/29/2009 - 16:11 | 18547 Anonymous
Anonymous's picture

yes it did

Wed, 07/29/2009 - 16:20 | 18563 Anonymous
Anonymous's picture

Makes me wish I day traded. It's absurdly predictable.

Wed, 07/29/2009 - 15:56 | 18521 Anonymous
Anonymous's picture

CSFB Index is essentially driven by put-call parity, or lack there of, which is in practice a function of volatility. So, these two indices have a tendency to move opposite each other. Using the since inception history for CSFB (per Bloomberg), it has a -53% correlation with VIX and a positive 19% correlation with SPX

Wed, 07/29/2009 - 16:28 | 18576 Fruffing
Fruffing's picture

Thanks for clarifying this#1851.   As the site's followers grow, the level of drivel is going up in the commentary.

Wed, 07/29/2009 - 16:41 | 18601 Anonymous
Anonymous's picture

you're quite welcome, and I've noticed that too.

Wed, 07/29/2009 - 21:54 | 18886 Anonymous
Anonymous's picture

Check the correlation for the period shown in chart shown above (~11/20/2008-6/30/2009) of the CSFB Fear Index and the S&P 500 Index. You'll find the correlation is a little higher than 19%. Heck, just eyeball it. I can only conclude that the most effective manner in which the economy may be improved is to introduce more fear into the market. So let it be written, so it shall be done.

Fri, 07/31/2009 - 16:27 | 21162 Anonymous
Anonymous's picture

Another factor could be, CSFB is a function of 3-month forward volatility while the VIX is 30-day forward volatility. There may be a divergence between these two.

Wed, 07/29/2009 - 15:57 | 18522 Anonymous
Anonymous's picture

A recent picture of your U.S. Goldman Sachs trading desk:

Wed, 07/29/2009 - 16:01 | 18527 Anonymous
Anonymous's picture

Pisani says victory for the Bulls so much I feel like Michael Jordan is playing again.

Wed, 07/29/2009 - 16:03 | 18529 Gilgamesh
Gilgamesh's picture

Going to start calling him Johnny Drama.

Wed, 07/29/2009 - 16:09 | 18544 I need more cowbell
I need more cowbell's picture

He doesn't have the calf muscles for it.

Wed, 07/29/2009 - 16:04 | 18531 mdtrader
mdtrader's picture

Well there was a whole host of bad news today. You would have expected 200 point down day, but it held up yet again. If the market doesn't go down significantly when the news is that bad, then when will it?

Wed, 07/29/2009 - 16:06 | 18537 deadhead
deadhead's picture

"If the market doesn't go down significantly when the news is that bad, then when will it?"


1. when you least expect it.

2. immediately after you covered your short



Wed, 07/29/2009 - 16:15 | 18556 mdtrader
mdtrader's picture

Have puts.

Wed, 07/29/2009 - 16:06 | 18540 Anonymous
Anonymous's picture

When someone pulls the plug on GS HFT computers!

Wed, 07/29/2009 - 16:16 | 18558 DebtorShredder
DebtorShredder's picture

Watch out for falling bric's.

They hurt when dropped from high levels.

Wed, 07/29/2009 - 16:04 | 18532 deadhead
deadhead's picture

18527...that was good....VERY good!

Wed, 07/29/2009 - 16:03 | 18530 Anonymous
Anonymous's picture

NDX: 12 consecutive higher lows, 14 consecutive closes greater than the open.

BENTIM9000 has got to be spitting out smoke at this point.

Wed, 07/29/2009 - 16:05 | 18535 Anonymous
Anonymous's picture

Crazy market, just lure shorters in on the back of pathetic fundamentals stuff, like auction, dreadful Beige book and wham, hit them going into close as per usual.

Dot com wasn't anywhere near as ridiculous as this

Wed, 07/29/2009 - 16:16 | 18557 Anonymous
Anonymous's picture

3 things:

1) SPX options face serious competition these days.

2) Given the past two weeks action how does the VXN compare?

3) More and more people (or machines) trading options as a proxy has to chow up somewhere.

Wed, 07/29/2009 - 16:17 | 18559 McLuvin
McLuvin's picture

Tyler, would you mind posting this on a regular basis?  Not necessarily everyday, but perhaps every week.  It would be helpful to have a good read into fear levels not shown by the VIX.  Two interesting take aways I see from this chart.  One, it seems the upward trajectory during a relatively calm market answers questions of where the juice for the big rally of the last few weeks came from.  And two, it's interesting that the measure is currently at the same level it was in January when the market last peaked, with the markets at similar levels.  The VIX used to provide this type of insight, but using that as a gauge the last 6 months would have provided no such information.  I looks like the peak at the end of June was a perfect trading buy signal, and the current still high level highlights the true dangers of trying to get short.

Wed, 07/29/2009 - 16:19 | 18561 Ags Nightmare
Ags Nightmare's picture

HFT's having a field day scalping those 1/2 pennies......DOW JOKES up "30" points in the last four days. 25 Billion cow chips being churned to to dust. The NasCrack barely moved also.

Lost Money all sold into the close as well ater telling everyone you just "gotta own this space" and "you just gotta be in this space".......yesterday...still haven't heard a peep out of the panel about their strong buy on amazon pre earnings.

This looked like the computers were positoning for tomorrow's gamed number which I'm sure is being held in an envelope in strict confidence by Mr. Beeks.


Wed, 07/29/2009 - 16:24 | 18567 Anonymous
Anonymous's picture

Compare that CSFB Fear Index to the S&P 500 Index. Hmmm. Pretty high positive correlation there. Fear, or out-of-the money put volume? A nice measure of hedging liquidity.

Wed, 07/29/2009 - 16:25 | 18568 GlassHammer
GlassHammer's picture

Is this the market of Bizarro World?

Its not as charming as I imagined it to be.

Wed, 07/29/2009 - 16:26 | 18570 Anonymous
Anonymous's picture

Again volume a total joke last min. save to pump market. No one is playing anymore. That this is now what is resorted to for action is pathetic. If the market dropped 5 percent many more may jump in but as it stands the market is like a kid who has nobody to play catch with.

Wed, 07/29/2009 - 16:27 | 18573 DebtorShredder
DebtorShredder's picture

How does "Asymmetric Volatility" figure in this CSFB? It doesn't.

Seems like a crock o s*it.

Wed, 07/29/2009 - 16:34 | 18582 mdtrader
mdtrader's picture

Another weird day done. I have marked Wall Street market integrity to zero!

Wed, 07/29/2009 - 16:35 | 18584 Ags Nightmare
Ags Nightmare's picture

Great site GH...after 17 years in what is now a filthy buisness...I am finally free. Of all things..a "money market" that is still partially frozen made me cry uncle. As for the current bubble...I have a screen shot of CAT deep in the money calls bought July 15 priror to its space needle. Nice hidden synthetic long for somoene but I still wonder who wrote those things....C has the same kind of games going on now.

All I know as far as I'm concerned these markets are so damaged the only way they can go up is by making absurd moves higher and when the absurd moves morph into bubbles they implode. These crack addicts are gunning for bubble number three.




Wed, 07/29/2009 - 16:40 | 18585 Danz Gambit
Danz Gambit's picture




Wed, 07/29/2009 - 16:48 | 18618 Anonymous
Anonymous's picture

The VIX crudely measures vol levels; the CSFB index focuses more on vol skew. Both are likely to be positively correlated with "fear," but neither is really a measure of it.

Wed, 07/29/2009 - 18:17 | 18692 Anonymous
Anonymous's picture

Very true - the CSFB at least attempts to take the volatility smile into account...but neither gives simultaneous insight into the term structure and skew of vol like plotting a vol surface does. Correlation with lagged SPX returns is better, but still problematic.

Also, there is nothing like implying volatility from an option pricing model that assumes constant vol and lognormal distribution of stock prices...the 200 day moving distribution of daily SPX returns has been anything but consistently Gaussian over the past 12 months

John Galt

Wed, 07/29/2009 - 17:04 | 18629 Anonymous
Anonymous's picture

Retail investors mostly held (like they were told to do) through the crash. There was a news report saying they were more calm than the institutions that were selling like mad. Poppycock. As an advisor, I can tell you that many investors wouldn't even look at their statements. Seriously. This isn't calmness; this is sticking your head in the sand. They're feeling a bit more cheery about things now that the markets have bounced strongly. Mutual fund and pension fund managers are worried about being left behind. Most mutual funds got walloped by the S&P last year. They don't want to do so again. All that matters to them is quarterly performance (yet we're told to give these guys money for the long haul!). Thus both retail investors and institutions are disinclined to sell just yet. Volatility is unquestionably down. It's done this about seven of the last ten summers. Further, when the Vix has dropped significantly and the market has risen, once the Vix breaks below 25, the market has generally stopped rising, even when the Vix has fallen down to 15. The market can surge from a Vix of 40 or 50. But from a Vix of 25 after a 40% surge? Odds are against it. We're also right up against the gap of last fall. With revenues and profits falling, you'd have to be crazy to invest at these levels. Trade for short-term? Sure. But by definition that means you'd get out at the first sign of trouble. It looks to me like a lot of people who actually caught part of this rally will sell to lock in gains if the market rolls over.

Wed, 07/29/2009 - 19:04 | 18723 gmak
gmak's picture

When I've graphed the CSFB against the SPX, it looks like a lagging indicator, not a leading one.

Any other similar experience, here?

Wed, 07/29/2009 - 19:59 | 18767 Budd Fox
Budd Fox's picture

Two days in a row the S&P drops like a stone to 969...precisely 969, then 'somebody" comes in without a reason on the planet, without a clue, and forcely drives it back to more or less previous day closing.

We must be kidding....I closed the shorts long ago, I got mildly squeezed, been there too long to get seriously squeezed...but doubled up puts and sold covered calls.

The darn thing is gonna crash and burn sooner or long can u prop it on hot hair ?

No one is buyin top line signs of life anywhere...and we hedging the S&P 1000 ??

Talk about Vegas is rigged ? Think better

Wed, 07/29/2009 - 20:00 | 18770 Anonymous
Anonymous's picture

When they say investor we can safely assume that leaves out Retails investor. This is the key I think, but moreover with that in mind the CSFB chart actually predicts the VIX's move quite accurately if you look at it as having predictive value.

The CSFB rose prior to S&P IV top in late 2006. I'm no pro and I knew housing was done for. Again in Jan 09 it topped out before VIX did and bottomed lastly in Mid March before VIX did also.

Thu, 07/30/2009 - 09:31 | 19153 Anonymous
Anonymous's picture

Skew is bid on this rally? Wow... who would have thought, wait that happens after every rally of this magnitude.

Thu, 07/30/2009 - 16:43 | 19861 Anonymous
Anonymous's picture

What is the symbol for the CFSB Index on Bloomberg?

Fri, 07/31/2009 - 07:43 | 20433 Anonymous
Anonymous's picture


I like how they've ignored the fact the low on the CSFB index was at the November low..nothing like distorting the facts to make a good ZH post.

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