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A Friendly Reminder on the VIX

CrownThomas's picture




 

The VIX index measures the expectations of market volatility out 30 days.

The VIX closed below 15 today - which means all is well, right?

As a reminder, the VIX was also calm like this about four years ago. And then the S&P promptly declined nearly 50%. As institutions pump up the price of equities, be very careful about who you're trusting with your retirement funds - history tends to repeat itself, and if it does in the case of the VIX level, you can plan on postponing retirement... again.

 

 

 

 

 

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Sat, 03/17/2012 - 14:29 | 2265152 LarryDavis
LarryDavis's picture

Can someone tell me how buying LEAPs on the VIX would be a bad idea? I'm not a great trader but I have never had a problem buying the VIX cheap and holding. I feel like its way too obvious right now but the temptation is killing me. Any help would be much appreciated.

 

Sat, 03/17/2012 - 11:38 | 2264853 Prime Meridian
Prime Meridian's picture

A Seeking Alpha post shows a real pre 2007 floor at 10 ... What do you think ?

Cost average 1000 shares VXX versus 1 point moves in VIX down to 10 ?

Or just day trade VXX until a Gap UP signal happens then get long with options ?

It seems all the Hedge Funds are unwinding their VIX insurance / positioning until the end of March ?

http://seekingalpha.com/article/436131-daily-state-of-the-markets-the-great-vix-debate?source=yahoo

Sat, 03/17/2012 - 08:33 | 2264656 MFL8240
MFL8240's picture

Retail investors are out of this market, prices going higher on manipulation by the Fed, the question tghen is, what value do any of these charts have when you have no reality in the market?

Sat, 03/17/2012 - 11:56 | 2264888 Sam Clemons
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This has happened before, and people said the same.  See April 2007, October 2007, April 2008, May 2010 and May 2011.

Sat, 03/17/2012 - 11:34 | 2264847 Cursive
Cursive's picture

@MFL8240

 

This analysis has made the rounds for the last 3 years and I was wrong to discount it.  Clearly the banks and market makers are waiting to offload.  I thought events would force their hand earlier than this, but being TPTB has it's advantages.

Sat, 03/17/2012 - 08:08 | 2264645 smb12321
smb12321's picture

The ONLY way that one should hold securities is with accompanying S&P puts.   It's an especially good time to pick up some cheap (low VIX).  Instead, what will happen is that the idiots - lulled by the endless MSM babble about the glorious recovery (quote unquote) - will rush in even as smart money is leaving. Don't they realize we are on the crest of a low-volume/low-expectation wave?

Sat, 03/17/2012 - 06:20 | 2264599 Paul Thomason
Sat, 03/17/2012 - 05:44 | 2264581 NervousRex
NervousRex's picture

VIX Vapor Rub

 

Sat, 03/17/2012 - 06:07 | 2264596 Zero Govt
Zero Govt's picture

mine's VIX Factor 5, 'Deleriously Happy'

Sat, 03/17/2012 - 03:28 | 2264503 TruthInSunshine
TruthInSunshine's picture

There's no time like the present to jump into equities, after a doubling of indexes in 3 years, constituting one of the largest bear market rallies (yes, Virginia, we are in a secular bear market in equities - you're down 40% from 1999 in real terms; or far more, as I like to mention, considering the magic-con artist tricks of reshuffling indexes and survivorship bias), during what can still be credibly argued to be flat or even deteriorating economic fundamentals (truly papered over by accounting tricks and, well, papering over - with fiat) in American Ponz....errr...equity market history (only that rough-great-rough patch in the 1930s produced a more outsized anomaly).

Sat, 03/17/2012 - 01:28 | 2264434 JuicedGamma
JuicedGamma's picture

Firstly, juiced gamma is what you get at the money options with a short lifespan. Zero hedge is a delta neutral hedge.

How do you make money in low environment, position and patiently wait.

What causes low vol/complacency? Look at the charts, slowly upward sloping over an extended period. The guys picking up the nickels in front of the steamroller have been doing well. Someone (Taleb possibly) said the option sellers eat like birds but shit like elephants.

What characterizes this environment is the lack of bad news and the feeling of impending doom. We all feel guilty taking advantage and buying our iPad 3 and AAPL stock. What could knock this market down.

Best guess is Iseal attacks Iran, not really a black swan in itself, the consequences could be dire, $200/barrel oil, bombs raining down on Tel Aviv, etc. That is my best guess as to the end of this bull and the vol explosion that follows would be massive. Sell into VIX above 40, remember at the height VIX was 80, but at the bottom march 09 it was about 40 so best not to be greedy.

Position yourself by buying cheap strangles (out of the money, with low theta, long time to expiration). Roll them with more than a month, you may have to wait a long time for the inevitable vol rise, so you may want to sell a small quantity of nearer term options to pick up some decay.

These are sophisticated strategies and you need an account with ability to sell naked options, and especially low commissions. IB is my choice.

Sat, 03/17/2012 - 09:26 | 2264690 master of the mews
master of the mews's picture

"option sellers eat like birds but shit like elephants"

I tried that.  For the last six months I've been eating like a bird but I just got constipated.

Sat, 03/17/2012 - 01:28 | 2264433 rickadoh
rickadoh's picture

i wouldnt jump in yet, but im no expert.....

Sat, 03/17/2012 - 00:06 | 2264360 jonjon831983
jonjon831983's picture

Just can't find a good entry point... It's sooo tempting now.

Sat, 03/17/2012 - 00:01 | 2264356 honestann
honestann's picture

What's the way to bet the VIX will rise?  And isn't there something strangely problematic about doing so that is unique to VIX (though I can't recall what that is)?

Sat, 03/17/2012 - 12:05 | 2264904 sun tzu
sun tzu's picture

VXX but I wouldn't use it as a long term investment. It doesn't track the VIX as they invest in short term VIX futures and keep rolling them. Look at a chart of the VIX vs VXX over the past 3 years

Sat, 03/17/2012 - 10:24 | 2264751 ZeroPower
ZeroPower's picture

SPX options, VIX futures and options, ETNs tracking the VIX... a whole bunch. 

Sat, 03/17/2012 - 00:08 | 2264366 jonjon831983
jonjon831983's picture

Talking about these ETNs and how performance may not match what you see?

http://www.ipathetn.com/product/VXX/

 

 

Fri, 03/16/2012 - 23:58 | 2264351 tom a taxpayer
tom a taxpayer's picture

Return of the Monster VIX!

Coming soon to a stock market near you. Parental guidance advised.

Sat, 03/17/2012 - 06:05 | 2264588 Zero Govt
Zero Govt's picture

there's Euphoria Support Groups at VIX-10 and nurses with anti-depressant drugs at VIX-80

we must keep the market together at all costs, Rothchild needs his Royalty machines operational

'KER-CHING'

Sat, 03/17/2012 - 09:59 | 2264718 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Many of the Baby Boomers won't be postponing retirement. It will becoming early when the companies find themselves in trouble and lay off a good portion of their workforce.

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