S&P Swoon? VIX Is Signaling No Such Thing-Minyanville

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S&P Swoon? VIX Is Signaling No Such Thing

Jared Woodard Aug 13, 2009 11:30 am

S&P Swoon? VIX Is Signaling No Such Thing


		Even a five-point pop-up over next week wouldn't be cause for concern.

It seems these days that the entire world is gasping at, of all things, minor twitches in out-month VIX futures. Earlier this week, Bloomberg’s strength ebbed and I caught them as, overcome, they whispered: VIX Signals S&P 500 Swoon as September Approaches.

Like any financial headline that calls to mind men in breeches and whooping cough, this one should be regarded with skepticism. In the first place, VIX futures are signaling no such thing: Even if the VIX popped up 5 points over the next week, that wouldn’t necessarily coincide with any rally-crushing, chaise-lounge-requiring swoon. And it’s just as likely that the futures will fall to meet the current VIX spot level as it is that spot VIX will rise. I know this because that’s exactly what's happened over the past month, as documented in the Volatility Tracker. Adam Warner has already dissected this piece, so see his post for more disapprobation. (Note that the frontal assault on our language continues unabated. I’m telling you, people, Bloomberg’s policy of calling every damn thing a “so-called thing” is just the beginning.)

Savvier traders, like member K.S., are thinking about whether to take the other side of the VIX doomsday view:

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"Do you have any suggestions on how to trade the contrary view that the VIX won't surge into the 30s/40s in the fall, such as selling VIX call spreads versus buying put spreads? I’m nervous about doing this due to the confusion on the part of the underlying. If I understand it correctly, the options are actually on the VIX futures but the cash VIX and the VIX futures converge at the futures expiration -- so on a trading basis the futures could drive different results if the futures are at a premium but at expiration they will converge. Since thinkorswim uses the cash VIX as the underlying trying to monitor positions in VIX options has to be a little challenging."

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Thomas Lacour

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08-13-2009, 5:17 pm
"Note that the frontal assault on our language continues unabated." I'm laughing and crying all at once. Lot's o' doublespeak these days to boot - "stimulus", cash for "clunkers" (all of which m Read More


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