Search This Blog

Friday, April 16, 2010

My Head Is Spinning Courtesy of the WSJ

WSJ March 20,2010

A Key Volatility Index That Says 'Buy' May Mean 'Bail' 

The stock market's most closely followed volatility index dropped this past week to its lowest level in nearly two years. Some investors who study volatility believe low readings are a bullish indicator for stocks. Historically, the market has tended to rise as volatility falls, and vice versa.
So the latest numbers are a surefire buy signal, right? Not necessarily. Dig a little deeper and you might even spot a contrarian indicator telling you to sell.

WSJ April 14,2010

Falling Volatility Doesn't Mean a Market Top Is Near 

The stock market seems a little too quiet to be near a significant peak.

When trends turn, it's usually after a period of increasing volatility, marked by spikes, drops and sharp intraday reversals. Both bulls and bears have a strong enough conviction to battle it out until one side is forced to capitulate. And that's certainly not the case at the moment.

I guess based on one day's market action one of these two writers would claim they were correct

Today the vix closed at 18.7  14.6% up for the day  Today's  trading range from  highto  low range was 16.1% remember from my previous post this represents an annualized number.

Using the formula in the march 25 post the  18.7  implied volatility represents a market view that the daily volatility has a 66% likelihood of being above 1.18% . Not at all unreasonable if extrapolating and managing option risk based on today's price action:

The S+P 500 closed down 1.6% today trading in a range of 2.13%

So in my view here is the message of the sharp move up in implied volatility: implied volatility moved up alot
  3mos vix and sp 500 charts are here



No comments: