Credit Suisse "Fear Barometer" Hits All Time High

Tyler Durden's picture


As we noted moments ago, the "old" VIX just hit record lows (and with the "new" one is just shy of single digits, it is hardly an indicator of imminent panic). Surely complacency rules, sentiment which is confirmed by looking at such indicators as intraday trading ranges and (even more) evaporating volumes, not to mention a Fed which explicitly is now involved in market "valuation" exercises following Yellen's statement that the market appears fairly valued (she will surely advise when it is no longer fairly valued).

So is it smooth sailing ahead, with the market firmly under the control of the Fed?

For one possible answer we refer to the latest note by FBN's JC O'Hara who looks at a different "fear" index, namely the Credit Suisse Fear Barometer. He finds that, at 37%, it has never been higher.

For a succinct explanation of what this far less popular indicator captures we use a handy definition by SentimentTrader:



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.


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.


So, for example, if the CSFB is at 20, then that means an investor would have to go 20% out of the money to be able to buy a put with the proceeds from selling a call that's only 10% out of the money.  That means there is more demand for put protection - a sign of fear in the marketplace.


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 or VIX. 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 Fear Barometer doesn't work as most of us expect it to.  It doesn't necessarily rise as the market drops, or fall as the market rises.  In fact, often it's the exact opposite.


The reason is because traders in S&P 500 index options are mostly institutional, so the options activity is often a hedge against underlying portfolios.  So when stocks rise, we often see more demand for put protection, not less.


It turns out that these traders can be pretty savvy short-term market timers.  So when we see a sharp upward spike in the Fear Barometer, it means that traders are quickly bidding up put options, and the S&P 500 often sees a short-term decline soon afterward.


Conversely, when we see a sharp contraction in the Barometer (and the Rate Of Change drops to -10% or more), then we often see the S&P rebound shortly thereafter.

In brief: when it comes to the "here and now", which in the Fed's centrally-planned market is driven almost excusively by momentum ignition algos, complacency indeed rules. But even the nearest glimpse into the near future, or rather how the present environment may disconnect with what may happen tomorrow, or next week, or, as the case may be, in three months, institutional investors are more concerned than ever before. But is this a confirmation that the US stock market is about to have its own "Dubai" moment?

The answer is unclear. Recall that it is the same "institutional" smart money that has over the past 5 years been hedged by shorting a hedge fund hotel of most hated stocks: the same stocks which as we have shown time and again consistently outperform the market, due to one after another furious short squeeze. Perhaps hedge funds have gotten tired of "hedging" (and generating losses, with hedge fund alpha virtually zero since the Lehman collapse) using cash products, and are now simply rolling over collared protection with every passing month as the stock market rises to recorder highs, well above levels that in 2007 precipitated a crash that nearly wiped out the financial system?

As for whether they are right, well: the best person to ask is Janet Yellen of course. Because with the Fed now permanently broken the business cycle (as any prolonged downturn in the economy will merely bring the Fed back out of hiding and bidding up risk assets), virtually nobody knows just how to trade this centrally-planned construct that the Fed has unleashed on the world.

As for the retail investors, not only do they not know, but as it is quite clear by now, they don't care either.

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Tue, 06/24/2014 - 12:28 | 4889687 Headbanger
Headbanger's picture

Nothing to fear but..

Tue, 06/24/2014 - 12:34 | 4889702 cossack55
cossack55's picture

"There is nothing to fear but the FED itself"

Tue, 06/24/2014 - 13:02 | 4889792 flacon
flacon's picture

Nothing to VIX but VIX itself.

Tue, 06/24/2014 - 13:08 | 4889816 max2205
max2205's picture

Its just a 1 coorelation to spy


Quite a dump going on now

Tue, 06/24/2014 - 13:18 | 4889823 flacon
flacon's picture


Tue, 06/24/2014 - 14:58 | 4890254 dontgoforit
dontgoforit's picture

To boldly go where no stawk market has never gone before....

Tue, 06/24/2014 - 15:32 | 4890399 macholatte
macholatte's picture


We already know the sheeple are afraid. Congrats to TPTB for engineering this perfect situation of enslaving the 99% and making them afraid of their own shadows.  Next step, get the guns.

Does anybody have an "Angry" index?

Tue, 06/24/2014 - 19:32 | 4891272 DaddyO
DaddyO's picture

More FED Cheerleading from the sycophants on Wall St.


Tue, 06/24/2014 - 12:35 | 4889703 cossack55
cossack55's picture

Damn slow computer. Must be the NSA

Tue, 06/24/2014 - 14:46 | 4890212 Truthseeker2
Truthseeker2's picture

If you really want something to fear then --->


WORMWOOD: Harbinger of the Apocalypse


Tue, 06/24/2014 - 14:56 | 4890243 madcows
madcows's picture

are you buying that?  Or was that just for entertainment?

Tue, 06/24/2014 - 15:39 | 4890431 dontgoforit
dontgoforit's picture

Well - that was uplifting.  However, in defense of Senor Ferada, it seems we all have a sense of impending doom.  We pin it on the government, the monetary system - take your pick; could it be that what we are collectively feeling is what some prophesy has indicated?  I've had this feeling since at least the 1970's and I have seen things in the last 20 years that most people would call me crazy if I told them about them.  I'm glad my extraordinarily sane wife of 31 years has witnessed what I'm alluding to or I would consider myself crazy.   

Tue, 06/24/2014 - 18:47 | 4891127 Reptil
Reptil's picture

I think we all play an active role in this (somehow).

Tue, 06/24/2014 - 20:23 | 4891423 Overfed
Overfed's picture

Anyone with even a layman's understanding of astronomy knows that Herculobus/Nibiru stuff is horseshit.

Tue, 06/24/2014 - 12:35 | 4889708 Soul Glow
Soul Glow's picture

....October.  Traders should fear October, 2014.

Tue, 06/24/2014 - 12:37 | 4889714 Sudden Debt
Sudden Debt's picture

It's my birthday in october... Is this a headsup that I'm not going to get my present?

Tue, 06/24/2014 - 12:39 | 4889722 NOTaREALmerican
NOTaREALmerican's picture

You'll want to double down in October,  just for good luck.

Tue, 06/24/2014 - 13:54 | 4889959 SoilMyselfRotten
SoilMyselfRotten's picture

Not only no present but no future either

Tue, 06/24/2014 - 13:01 | 4889789 ShrNfr
ShrNfr's picture

Ah, but the correlary also holds: When there is nothing to drink but beer itself, drink beer.

Tue, 06/24/2014 - 19:15 | 4891221 I need Another Beer
I need Another Beer's picture

Yes indeed


Tue, 06/24/2014 - 12:33 | 4889692 Soul Glow
Soul Glow's picture

Complacency kills.

- A Wildland Fire Crew Boss I worked for

Tue, 06/24/2014 - 13:14 | 4889829 seek
seek's picture

I misread this as "Complacency Skills" and it strangely made sense to me. It's likely a required resume bullet to work at the Fed.

Tue, 06/24/2014 - 12:34 | 4889701 power steering
power steering's picture

Is it bullish or bearish?

Tue, 06/24/2014 - 12:36 | 4889709 PontifexMaximus
PontifexMaximus's picture

Bullish, the CB's will do their job.

Tue, 06/24/2014 - 18:15 | 4891006 Rainman
Rainman's picture

yeeehaw ... 63% are still bullish ! ... cup more than half full !!


Tue, 06/24/2014 - 12:35 | 4889704 ENTP
ENTP's picture

VIX fully disconected.  That's what happens with artificial interference.

Tue, 06/24/2014 - 16:05 | 4890537 Bunga Bunga
Bunga Bunga's picture

Calm down, dysfunctional financial indicators are a completely normal symptom in central planning.

Tue, 06/24/2014 - 19:13 | 4891211 Kassandra
Kassandra's picture

I read that as "central spawning"..which also makes sense in a weird sort of way.

Tue, 06/24/2014 - 12:35 | 4889706 fonzannoon
fonzannoon's picture

50% 3x spy

20% momo

30% biotech

go fishing

Tue, 06/24/2014 - 12:37 | 4889712 PontifexMaximus
PontifexMaximus's picture

And the whole package levered ........times fonz!

Tue, 06/24/2014 - 12:36 | 4889710 Sudden Debt
Sudden Debt's picture


Tue, 06/24/2014 - 12:43 | 4889731 THX 1178
THX 1178's picture

seriously. The signs are obviously there. Its only a matter of time until the masses see it.

The engines cut off in 2008 and weve been gliding ever since. What were feeling right now is the treetops scraping the bottom of the plane as we come in for the BIG ONE! Brace for it.

Tue, 06/24/2014 - 13:24 | 4889855 JRobby
JRobby's picture

Brace for anihilation!

Tue, 06/24/2014 - 18:32 | 4891073 eclectic syncretist
eclectic syncretist's picture

They must be able to counterfeit this bitch to at least 2000 on the S&P, dont you think?

Tue, 06/24/2014 - 12:49 | 4889749 optimator
optimator's picture

Now the FED would say, Okay little people, have another drink courtesy of the FED, and by the way we'll be making a premature arrival shortly.

Tue, 06/24/2014 - 12:38 | 4889718 NOTaREALmerican
NOTaREALmerican's picture

Fear of lack of fear?    (Back to sniffing the Ol' Vix.    Ahhhhh....  I love the smell of Vix in the morning.   It smells like ______________)

Tue, 06/24/2014 - 12:40 | 4889726 FieldingMellish
FieldingMellish's picture

Soon to be all-time-higher.

Tue, 06/24/2014 - 12:40 | 4889727 youngman
youngman's picture

It will crash when the Companies quit the buybacks....they are the only buyers

Tue, 06/24/2014 - 12:43 | 4889730 ENTP
ENTP's picture

Gamma to the downside indicating that this won't be a minor move down, but a sharp move down.


No immenent fear, but when fear begins to creep it will move back into the market rapidly.  That is what is being priced in right now.  All it takes is a couple of strategically placed headlines to get the algos going and things flowing (disclaimer: whenever they want to make the move).

Tue, 06/24/2014 - 12:51 | 4889759 Squid Viscous
Squid Viscous's picture

yes - your'e right, except I was thinking the same thing about 400 SPX points ago

Tue, 06/24/2014 - 12:44 | 4889740 Schmuck Raker
Schmuck Raker's picture

Anyone know the dates on that charts?

Tue, 06/24/2014 - 12:55 | 4889769 Schmuck Raker
Schmuck Raker's picture

nm, starts '98 I'm guessing.

Tue, 06/24/2014 - 12:44 | 4889741 Bemused Observer
Bemused Observer's picture

I find it interesting that the kind of folks making money in this market are very often the ones who will scream "Socialism!" at any talk of fixing the huge income disparity we have.

Yet that market they play and profit in is anything but free. As the article states, it is now a CENTRALLY-PLANNED market. That type of central planning is a feature, not of socialism, but of communism.

So, our so-called 'capitalists' are in fact nothing but a bunch of friggin' commies. Just because they put on top hats and monocles and walk around saying "Free Markets!" doesn't change the fact that they are in fact communists at the core.

What are these nouveau-Commies gonna DO when they run out of other people's money?

Tue, 06/24/2014 - 12:47 | 4889744 alien-IQ
alien-IQ's picture

This is Amerika.

When Warren Buffet gets a bailout, it's capitalism.

When some broke-ass motherfucker gets food stamps, it's socialism.

Don't search for logic. Just accept the facts: This farce is fucked.

Tue, 06/24/2014 - 12:53 | 4889766 NOTaREALmerican
NOTaREALmerican's picture

Re: gonna DO when they run out of other people's money

Most humans are pathologically optimistic short-term thinkers.   So,  I would guess, the nouveau-commies are thinking: "There's a sucker born every minute" (and I suspect they might be right).

Tue, 06/24/2014 - 12:44 | 4889742 SloMoe
SloMoe's picture

Can you please bother me with this later? I'm busy dressing my windows...

Tue, 06/24/2014 - 12:51 | 4889757 MountainsRoam
MountainsRoam's picture

Why the fuck is the Federal Reserve advising us stock markets are fairly valued?? Another example of how criminal they have become..

Tue, 06/24/2014 - 12:55 | 4889772 NOTaREALmerican
NOTaREALmerican's picture

They've got very complex models which show what the correct price of everything is.    They are just sharing this information.  

Tue, 06/24/2014 - 12:58 | 4889777 BullyBearish
BullyBearish's picture

Some A$$wipe on Bloomturd yesterday saying that "5 years into the recovery we're about where we should be"

Tue, 06/24/2014 - 13:06 | 4889807 El Hosel
El Hosel's picture

We have nothing to fear but the Fed and they are fed up with fear of their "market".

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