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A Different Assessment of Risk

Phoenix Capital Research's picture


Perhaps the single most misunderstood item in the financial world is the Chicago Board Of Options Volatility Index, or VIX.


The VIX is a measure of how much investors are willing to pay for portfolio “insurance.” If they’re willing to pay a lot (the VIX is high), then it’s assumed investors are nervous. If they don’t want to pay much (the VIX is low), then it’s assumed investors are calm and expecting blue skies ahead


Because of this, most investors, including the majority of professional investors, believe the VIX provides a reliable barometer of market risk


This is not true. The reason is because investors are usually greedy when they should be fearful and vice versa. If the VIX is up, it’s not because the market is “risky” or at risk of falling… it’s because the market already FELL!


As anyone knows, the time to buy stocks is when they’re “low” as in “buy low, sell high.” But as I just explained, stocks are usually “low” when they’ve already fallen  (which would mean the VIX is already spiking). Put another way, the VIX doesn’t really measure risk per se… instead it shows you when investors are panicked… and that’s when you should consider buying.



Take a look at the above chart. Everytime the VIX spiked (the blue line below), the market had already dropped and was in the process of bottoming.


Now let’s look at a longer-term chart. Once again, the VIX spiked after the market had already plunged. In fact, buying stocks around the time the VIX spiked was a GREAT way to trade the market going back for years. If you had done this, you would have profited handsomely.



If you want to make a killing in the markets, you need to be willing to see the world the way it really is, NOT how you THINK it is. Most investors think the VIX measures the market’s risk, but really, it’s almost the opposite: a spike in the VIX almost always picks market bottoms!


For a FREE Special Report on how to beat the market both during bull market and bear market runs, visit us at:


Best Regards


Phoenix Capital Research



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Tue, 12/03/2013 - 16:54 | Link to Comment the grateful un...
the grateful unemployed's picture

the options players use the VIX, but since they never offer more than a few contracts at a time they can adjust their prices according to demand. they still have to be right, and they take both sides of the trade. its a lot like the sports books in Vegas, where spreads are teased to try to bring the buying the selling into line. the secret from their perspective (options players) is that the market never turns as quickly as most think it will (this is part of the way the markets are rigged) which means that this months options never quite hit the strike, and next months options are suddenly way more expensive. on occasion i have made a killing on options, but it was almost always LEAPs, to do that you have to find a new trend and get in front of it and the VIX has the least effect on the long strikes. you just have to be right. 

Tue, 12/03/2013 - 12:20 | Link to Comment screw face
screw face's picture

...Risk On


zerohedge @zerohedge 2m

Don't all insolvent US cities file for bankruptcy at the same time now. There is a slot for everyone. Like · · · 10 minutes ago ·

Tue, 12/03/2013 - 12:17 | Link to Comment Laughing Stock
Laughing Stock's picture





 "...picks market bottoms!"

He who picks bottoms, end up with stinky finger.


Likewise: He who read Phoenix Crapital posts, waste a lot of time


Tue, 12/03/2013 - 12:14 | Link to Comment screw face
screw face's picture

i smell a new bubble...

Tue, 12/03/2013 - 16:04 | Link to Comment ebear
ebear's picture

Well, that's what you get for farting in the bathtub.

Just be glad it was only a fart!

Do NOT follow this link or you will be banned from the site!