S&P Swoon? VIX Is Signaling No Such Thing
Even a five-point pop-up over next week wouldn't be cause for concern.
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:
"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."
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter