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VIX signal

Posted By Barry Ritholtz On August 20, 2003 @ 9:24 am In Finance | Comments Disabled

The VIX measures the volatility of index option prices listed on the CBOE. Like the put/call ratio, it is a measure of investor sentiment. In the rare cases when the VIX moves above 45, it reflects major angst in the market, indicating an advantageous buying juncture; At times when it drops beneath certain levels, it indicates complacency.

Yesterday, Gary B. Smith ran this graphic on RealMoney, and I agree with his perspective:


Source: Realmoney.com [1]

The Volatility Index is often called the fear indicator; When investors are nervous, they often hedge their positions through option buying; When they are too complacent, they ignore hedging alternatives.

Click on chart for larger image . . . Source:Stockcharts.com [2]
vIX his [3]

Look to buy peaks above 50; When the VIX drops below the 18-20 range, it suggests a complacent market due for a reversal.

URLs: Realmoney.com [1]


Stockcharts.com [2]

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2003/08/vix-signal/

URLs in this post:

[1] Realmoney.com: http://www.thestreet.com/p//rmoney/techforumrm/10108780.html

[2] Stockcharts.com: http://stockcharts.com/def/servlet/SC.web?c=$VIX,uu[l,a]waclyyay[df][pb50][vc60][i]&pref=G

[3] Image: http://bigpicture.typepad.com/comments/vIX his.html

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