Sunday, December 5, 2010

Chart of the Week: VIX Support

In this week’s chart of the week, I have created a chart of the VIX going back to June 2007 which uses weekly bars to show that just about the time stocks made their 2007 pre-crisis highs, the VIX was establishing the 17-18 area (yellow bar) as a zone of support.

During the past three plus years, the VIX has frequently found support in the 17-18 zone before bouncing higher. In fact, the one time the VIX has made its most impressive break below the 17-18 zone was back in April, just before the European sovereign debt crisis hit and pushed the VIX all the way up to 48.20, which just happens to be the highest VIX level recorded outside of the financial crisis of 2008-2009.

For this reason, VIX puts are extremely inexpensive right now and one can actually buy VIX puts for March, April and May of 2011 for less than half the price of what the December 2010 puts are currently being offered.

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Disclosure(s): neutral position in VIX via options at time of writing

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