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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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.

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.



spekulatn's picture

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



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?"

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.



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.

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'.

Anonymous's picture

go back to the old site

Danz Gambit's picture

forget it, its done, man up

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.

novanglus's picture

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

dnarby's picture

One way ticket sales out of the country.

deadhead's picture

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


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.

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.

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.


DebtorShredder's picture

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

The only thing that changed was the names.


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?

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.

Dr Hackenbush's picture

the squeeze is on - hope no one got suckered. 



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).

Anonymous's picture

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

Anonymous's picture

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

Anonymous's picture

yes it did

Anonymous's picture

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

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

Fruffing's picture

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

Anonymous's picture

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

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.

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.

Anonymous's picture

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


Anonymous's picture

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

Gilgamesh's picture

Going to start calling him Johnny Drama.

I need more cowbell's picture

He doesn't have the calf muscles for it.

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?

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



Anonymous's picture

When someone pulls the plug on GS HFT computers!

DebtorShredder's picture

Watch out for falling bric's.

They hurt when dropped from high levels.

deadhead's picture

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

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.

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

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.

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.

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.


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.

GlassHammer's picture

Is this the market of Bizarro World?

Its not as charming as I imagined it to be.