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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Headbanger's picture

Nothing to fear but..

cossack55's picture

"There is nothing to fear but the FED itself"

flacon's picture

Nothing to VIX but VIX itself.

max2205's picture

Its just a 1 coorelation to spy


Quite a dump going on now

flacon's picture


dontgoforit's picture

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

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?

cossack55's picture

Damn slow computer. Must be the NSA

Truthseeker2's picture

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


WORMWOOD: Harbinger of the Apocalypse


madcows's picture

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

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.   

Reptil's picture

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

Overfed's picture

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

Soul Glow's picture

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

Sudden Debt's picture

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

NOTaREALmerican's picture

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

SoilMyselfRotten's picture

Not only no present but no future either

ShrNfr's picture

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

Soul Glow's picture

Complacency kills.

- A Wildland Fire Crew Boss I worked for

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.

power steering's picture

Is it bullish or bearish?

PontifexMaximus's picture

Bullish, the CB's will do their job.

Rainman's picture

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


ENTP's picture

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

Bunga Bunga's picture

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

Kassandra's picture

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

fonzannoon's picture

50% 3x spy

20% momo

30% biotech

go fishing

PontifexMaximus's picture

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

Sudden Debt's picture


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.

JRobby's picture

Brace for anihilation!

eclectic syncretist's picture

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

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.

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 ______________)

FieldingMellish's picture

Soon to be all-time-higher.

youngman's picture

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

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).

Squid Viscous's picture

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

Schmuck Raker's picture

Anyone know the dates on that charts?

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?

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.

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).

SloMoe's picture

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

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..

NOTaREALmerican's picture

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

BullyBearish's picture

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

El Hosel's picture

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