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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 
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 
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 
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:
 Realmoney.com: http://www.thestreet.com/p//rmoney/techforumrm/10108780.html
 Stockcharts.com: http://stockcharts.com/def/servlet/SC.web?c=$VIX,uu[l,a]waclyyay[df][pb50][vc60][i]&pref=G
 Image: http://bigpicture.typepad.com/comments/vIX his.html
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