Thursday, September 18, 2008

VIX to 42.16...But Will It Hold?

So we have a new line in the sand right now, a VIX of 42.16 (and SPX of 1133).

Note that when the VIX continues to spike to new highs even as the markets are not making new lows, then we have extreme fear.

To answer a question in a post below, there is no reason why the VIX cannot spike above 45 today, though I do not expect that to happen.

In terms of a potential bottom, the big fly in the ointment is the calendar. Tomorrow is options expiration, which is followed by a weekend in which I can't imagine many investors will be comfortable with large long positions. As a result, if the markets do not show some strength in the second half of today's session, they are not likely to be strong tomorrow or Monday morning.
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5 comments:

  1. AnonymousSeptember 18, 2008 at 10:14 AM

    here's another fly in the ointment i discovered last night. Can we have a bottom without S&P BPI below at least 30% with 20% being ideal?? I follow only the 10DEMA. PPO appears to need -20 to begin a bottom discussion??

    --dowoper8tr--

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  2. AnonymousSeptember 18, 2008 at 10:14 AM

    http://stockcharts.com/h-sc/ui?s=$BPINDY&p=D&yr=10&mn=2&dy=0&id=p34642421232&a=147666633

    Chart for you.

    --dowoper8tr--

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  3. TJFSeptember 18, 2008 at 10:26 AM

    Bill...if I am looking at the right quote at the CBOE here:

    http://www.cboe.com/DelayedQuote/SimpleQuote.aspx?ticker=VIX/V8

    The October VIX futures contract is trading at 27.31, considerably less than the current 42.16. It would seem that buying an option on the VIX betting that it would fall might not work since they are priced off futures and not spot?

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  4. Bill LubySeptember 18, 2008 at 10:43 AM

    Hi Eric,

    The short answer to your question is that you have described the VIX options/futures issue correctly.

    For a related post that may be of help, you might want to check out
    VIX Options in Current Declining Volatility Environment    . Note in particular what happened following the 2/27/07 64% jump in the VIX.

    Cheers,

    -Bill

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  5. Jeff Pietsch CFASeptember 18, 2008 at 1:28 PM

    Hilarious day Bill... better to wait for the indicator to "hook" once critical levels are met, in my opinion. Today may have been that day. Good work!

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