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Situation Normal, Market Down, VIX Down

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Here we are with the S&P 500 Index down some 1.21% yet the VIX, yes that gauge of fear that usually jumps on sell-offs, is actually down about 1.5% to 18.60 on the day. So what gives? Is this a clear sign of complacency and therefore a sell signal? Not so fast. Let’s look at how this number is calculated and what it means relative to current and future option prices.

The VIX is an offshoot of the statistical measurement of the historical or realized 30 day volatility of the S&P 500 options. Believe it or not this number has come down from 18% just 20 days ago to a current reading of 14%. The main explanation for the drop in HV is that it only captures the hi/low of the day not the intraday swings. So while markets might be meandering intraday they have mostly stayed within a narrow range day to day.

To read the rest of Steve's take on today's VIX (^VIX) action, take a FREE 14-day trial to OptionSmith and get his specific options trades emailed to you along with exclusive access to his full portfolio. Learn more.
POSITION:  No positions in stocks mentioned.