Thursday, June 7, 2007

How Overextended is the VIX?

In a word: excessively.

With the VIX currently up almost 14% to 16.96 in what is now a four day bounce, today's VWSI threshold numbers, which are good for generating setups for mean reversion plays are:
VWSI -8 at VIX 17.03
VWSI -9 at VIX 17.09
VWSI -10 at VIX 17.76

Keep in mind that most four day VIX moves will reverse dramatically over the course of the next few days. In fact, this may be a good time to review some post-spike VIX tendencies I spelled out following the February 27 VIX spike.

2 comments:

Anonymous said...

Hey Bill,
I too was just taking a very close look at the February hiccup. I would suggest that you take the time to check out the other CBOE indexes after that spike, as it seems there is quite a bit of fascinating implication from combinations of these indicators.

http://www.cboe.com/micro/IndexSites.aspx

And although the past two or three years seem to indicate a quick return to pre-jump levels, I can't help but consider a nontrivial likelihood of a return to historic volatility levels.

-Michael J Bommarito II

Bill Luby said...

Good point(s), Michael. I was just contemplating what it would make for me to change my opinion about long-term volatility levels vs. the short-term volatility levels that I talk about 99% of the time.

Regarding long-term volatility trends, I'm still in a watch and wait mode, but the monthly VIX chart is starting to get interesting.

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