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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 | Link to Comment 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 | Link to Comment 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.

http://www.cboe.com/micro/VIX/VIXoptionsQRG.pdf

 

Wed, 07/29/2009 - 16:07 | Link to Comment spekulatn
spekulatn's picture

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

 

"MARK IT ZERO, DUDE"

Wed, 07/29/2009 - 15:33 | Link to Comment 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 | Link to Comment 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.

"

http://www.financialsense.com/Market/kirby/2009/0629.html

Wed, 07/29/2009 - 16:06 | Link to Comment 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 | Link to Comment 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 | Link to Comment Anonymous
Wed, 07/29/2009 - 15:59 | Link to Comment Danz Gambit
Danz Gambit's picture

forget it, its done, man up

Wed, 07/29/2009 - 19:16 | Link to Comment 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 | Link to Comment 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 | Link to Comment Gilgamesh
Gilgamesh's picture

RGR

Wed, 07/29/2009 - 16:01 | Link to Comment dnarby
dnarby's picture

One way ticket sales out of the country.

Wed, 07/29/2009 - 16:08 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment Anonymous
Wed, 07/29/2009 - 15:58 | Link to Comment 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 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:19 | Link to Comment Anonymous
Wed, 07/29/2009 - 15:46 | Link to Comment 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 | Link to Comment Anonymous
Wed, 07/29/2009 - 15:49 | Link to Comment Dr Hackenbush
Dr Hackenbush's picture

the squeeze is on - hope no one got suckered. 

 

 

Wed, 07/29/2009 - 15:51 | Link to Comment 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 | Link to Comment Anonymous
Wed, 07/29/2009 - 15:54 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:11 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:20 | Link to Comment Anonymous
Wed, 07/29/2009 - 15:56 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:28 | Link to Comment 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 | Link to Comment Anonymous
Wed, 07/29/2009 - 21:54 | Link to Comment Anonymous
Fri, 07/31/2009 - 16:27 | Link to Comment Anonymous
Wed, 07/29/2009 - 15:57 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:01 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:03 | Link to Comment Gilgamesh
Gilgamesh's picture

Going to start calling him Johnny Drama.

Wed, 07/29/2009 - 16:09 | Link to Comment 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 | Link to Comment 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 | Link to Comment deadhead
deadhead's picture

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

Either:

1. when you least expect it.

2. immediately after you covered your short

 

 


Wed, 07/29/2009 - 16:15 | Link to Comment mdtrader
mdtrader's picture

Have puts.

Wed, 07/29/2009 - 16:06 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:16 | Link to Comment DebtorShredder
DebtorShredder's picture

Watch out for falling bric's.

They hurt when dropped from high levels.

Wed, 07/29/2009 - 16:04 | Link to Comment deadhead
deadhead's picture

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

Wed, 07/29/2009 - 16:03 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:05 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:16 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:17 | Link to Comment 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 | Link to Comment 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 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:25 | Link to Comment 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 | Link to Comment Anonymous
Wed, 07/29/2009 - 16:27 | Link to Comment 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 | Link to Comment mdtrader
mdtrader's picture

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

Wed, 07/29/2009 - 16:35 | Link to Comment 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 | Link to Comment Danz Gambit
Danz Gambit's picture

deleted

 

 

Wed, 07/29/2009 - 16:48 | Link to Comment Anonymous
Wed, 07/29/2009 - 18:17 | Link to Comment Anonymous
Wed, 07/29/2009 - 17:04 | Link to Comment Anonymous
Wed, 07/29/2009 - 19:04 | Link to Comment 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 | Link to Comment 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 later...how long can u prop it on hot hair ?

No one is buyin nuthin...no 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 | Link to Comment Anonymous
Thu, 07/30/2009 - 09:31 | Link to Comment Anonymous
Thu, 07/30/2009 - 16:43 | Link to Comment Anonymous
Fri, 07/31/2009 - 07:43 | Link to Comment Anonymous
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rocky89's picture

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