Did October 2008 Panic Exceed the 1987 VIX Levels ?
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In all of the end of month mayhem last week, you may have missed the above Bloomberg chart-of-the-day on Friday. It showed something that was rather fascinating: Option traders have been at a more elevated level of fear for a longer period of time than during the 1987 crash.
The comparison is one between short and sharp (1987) versus high and protracted (2008). Its between a brief peak and a prolonged elevation.
Here’s the Ubiq-cerpt:™
“U.S. stock investors have been more fearful for longer than they were in the weeks before the October 1987 market crash, according to a gauge known as the old VIX.
The CHART OF THE DAY shows the closing values for this indicator, the Chicago Board Options Exchange S&P 100 Volatility Index, in the past two months (the white line) and the same period 21 years ago (the red line).
This year, the old VIX climbed from the start of September through Oct. 11, when it surpassed 100 in intraday trading for the first time since the month of the crash. Back in 1987, the index stayed below 30 until the Friday before stocks tumbled.
The indicator is derived from prices of options on the S&P 100, as its name suggests. The current version, introduced five years ago, uses S&P 500 options and includes more contracts in the calculations. Their readings tend to be similar. The VIX closed yesterday at 62.90.”
Good stuff . . .
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Source:
‘Old VIX’ Shows More Sustained Fear Than in 1987: Chart of Day
David Wilson
Bloomberg, October 31 2008
http://www.bloomberg.com/apps/news?pid=20601109&sid=ays2N58cIcUo&
November 3rd, 2008 at 12:21 pm
Eh, I was gonna make a joke about how I used Vix Vapor Rub when I was a little kid and got a cold, and would walk around all stinky, but as far as the CME VIX, hey it’s crazy, and the only reason it is crazy is that you still have a ton of slap happy investors who still do not recognize an overbloated, overvalued remnant of a stock market bubble when they see one. Hell, the ISM manufacturing index hit below 39 and the Dow is up 38. I mean, I follow that ISM number and I can tell you under 39 is pretty damn near Depressionary levels.
OK, now that I have stayed on topic for one paragraph, I just wanted to, as a registered Republican (get over it), point out how my friend Peter Shit went on CNBC today predicting that the recession Obama would inherit will stay with him for 4 years. Well, isn’t that special? Libertarians and their Austrian school wingnuts are now banding with neocons and their Keynesian Friedman-side wingnuts on the eve of the election. The common thread? Peter Shit realized he didn’t care as much about the gargantuan national debt and the flogging of our poor dollar as his own marginal tax rate going up 3%. I was going to write something more clever, but I just realized it is sufficiently satisfying just to write “Peter Shit” three times.
November 3rd, 2008 at 12:39 pm
The elevated vix has to be due, at least in part, to the stress at Citadel. Aren’t they historically trading something like 1/3 of all options. Some of that rising cost has to be their partial absense, no?
November 3rd, 2008 at 12:49 pm
As someone who traded both periods nothing in 2008 compares to 1987. Nothing and I mean nothing since has ever compared to Black Monday and Tuesday. While today’s markets have declined, with officials screaming fire in the theatre everyday, they have been orderly for all but a handful of stocks.
On those two days in Oct 87, sitting at my desk trading commodities, the spooz, OEX’s and bonds with client accounts disappearing between just the bid and ask, the world was ending. On this there was no debate at the time. People, foolish enough in a panic, putting in market sell orders and getting filled 30 points below the listed bid and finding out several hours later. All trades falling under “fast market” conditions leaving no recourse. For many it was whole careers disappearing before their eyes. Forced liquidations. Today by comparison we have had months to think, liquidate and reconfigure. Then it was all on the opening and two days of shear chaos.
I would not wish those two days on anyone. They have never happened before and god willing they will never happen again.
November 3rd, 2008 at 12:52 pm
The VIX is not a chart that I technically follow.
However, I should say that looking at that blue line…. from an Elliot Wave perspective, it looks very much like an ABC type pattern up, where the A wave peaked at 85 ish and now we’ve been merely congesting in a choppy B wave that could conclude around the 50% level. If that’s what’s going on here, then expect a pretty decent C wave up on the VIX whenever this consolidation ends….
Regards,
AT
November 3rd, 2008 at 1:12 pm
I was going to write something more clever, but I just realized it is sufficiently satisfying just to write “Peter Sh**” three times.
–CNBC S
I’ll, foursquare, nominate this clown as an Asshat.
http://www.thefreedictionary.com/foursquare
November 3rd, 2008 at 1:46 pm
At no time in the last month or two did I experience outright fear and panic, even though I felt a little intestinal discomfort while wading around in the bottom of the waterfall on a couple of occasions. The 9-11% down days felt like orderly selling, as Patrick points out. It is possible that circuit breakers and extensive use of short vehicles would limit the extent of a 1987-type crash these days. Does this mean that the pain of this bear market is over? Nope, we have far more misery to endure, although it may be of the 1970s variety – the life draining out of the markets not with a bang, but with a whimper.
November 3rd, 2008 at 1:55 pm
Is the VIX of today (one that is public and easily followed) a bit different from the measure in 1987 when the index did not “officially” exist? Perhaps with the ability to visually see the VIX move is perhaps somewhat of a self-fulfilling-prophecy. None the less, it is curious to see that we are nearly at the same point here in November.
November 3rd, 2008 at 1:56 pm
Karen,
Thank you for the prgn suggestion Friday. Even though I have blogged to you about the Baltic Dry Index and my fears for the market, I did buy some prgn this morning, and now have sold it all. Best one day gain I have ever had in the market.
I will have to take you out to dinner if you are ever this way.
Bruce in Tennessee
(Barry’s hoops you have to jump through made me leave off and i…can’t say as I am enamored of the red tape you have now…but it isn’t my site, and I had to thank Karen for the tip Friday.)
November 3rd, 2008 at 1:57 pm
BTW, this is off-topic but can the SPECTER of deflation and other adherents of the Austrian school explain to me why 30-year mortgage rates are going UP if there is a massive deflationary wave at work? I believe we are seeing a selective deflation of ASSETS, coupled with a repricing of risk and an INCREASE in the cost of borrowing….
If only deflation were the only force at work here, life would be simple, and only those who deserve to be punished would see their assets dwindle. In fact, the reflationary devaluation of the $ will ensure that we are all going to suffer for the sins of the few.
November 3rd, 2008 at 2:15 pm
CNBCSucks comments suck.If you cannot “write something more clever”please spare us.I find your comments vacuous and ,therefore, off-putting.
November 3rd, 2008 at 2:44 pm
Bruce, thanks for the update. good timing on your sell, too, as the market in general is iffy. keep an eye on it as it’s paying a nice dividend and you may want to buy it under $6 for a longer term hold. DRYS reported today so it boosted the sector…prgn reports on the 1oth and dht on the 19th. amazing divs on those two if they can sustain them…
November 3rd, 2008 at 3:15 pm
Karen,
I did go back and review the video of Cramer recommending PRGN as a buy on May 19th….since that time PRGN has lost about 2/3, but who’s keeping score?
Again, thanks. Had a wild ride during the tech bubble when I was als0 very selective , but never up 23% in one day…never.
November 3rd, 2008 at 3:48 pm
@ Bruce, you missed my Mother of All Short Squeezes™ ride on UYG, that was good for 35% in a day…. The VIX is down in the 50s, no wonder it seems so boring today, that should indicate a tradeable market for a few weeks at least. With the election upon us, I am thinking about a little SKF into the close.
November 3rd, 2008 at 4:34 pm
On an unrelated note, I loathe Maria Bartiromo. How exactly did she become as so called “star” on CNBC? I don’t think she’s very bright or maybe I’m wrong?
Need to mute her every time she comes on. That voice of hers is just too much.
November 3rd, 2008 at 4:43 pm
leftback 1.57…
I’m not really a disciple of the Austrian School…
I think I know what your getting at with the 30 year mortgage rising….you’re suggesting that it’s somehow “inflationary”? However…if the median income of Americans are stagnant, and the 30 year mortgage rises, then that implies that the housing assets will go lower as Americans will not be able to afford the same house a 7% v 5%. So, the rising mortgage rates is sort of deflationary for home values.
- AT
November 3rd, 2008 at 5:25 pm
bruce, you just tainted my prgn by telling me that cramer recommended it.
manwich jeff, you have good taste!
leftback, pls lets not get into trading stories cuz i have some good ones and i wouldn’t want to bruise your ego.
November 3rd, 2008 at 5:39 pm
Why, thank you Karen. Wish I had caught your prgn call. For some reason, I didn’t see it. Might have bought some myself. No worries that Cramer recommended it. His timing on the call was terrible. Yours wasn’t.
November 3rd, 2008 at 6:46 pm
Nov. 3 (Bloomberg) — Manufacturing in the U.S. contracted in October at the fastest pace in 26 years as a record share of banks made it tougher to get loans and faltering economies abroad eroded prospects for American exports.
Market reaction: NO REACTION. It was ,after all, only 26 years. Dat’s Notin’ says Paulson’s PPT. Free stock market? Vote with your dollars? HA! The PPT votes with YOUR dollars, alright. Heads you lose, tails I win says Paulson. Never give a sucker an even break. Have a nice day.
November 3rd, 2008 at 8:55 pm
AGG:
No manipulation today. When markets as a whole want to, they just ignore news, good or bad. Live with it. If markets had been rational and acted quickly on information, they wouldn’t have kept going up in 2006-07; it didn’t take a genius to see a bubble there. Instead, they had to be hit over the head with a two by four.
My theory is that those who were going to get panicked out already have been. Among those left, a substantial percentage think a bottom is in: more bad news is to be expected and is already discounted. Many of the rest are willing to play the bounce and won’t sell just on news, but only if the market action turns sour.
As Jesse Livermore said: “That is why I repeat that I never argue with the tape. To be angry at the market because it unexpectedly or even illogically goes against you is like getting mad at your lungs because you have pneumonia.”