What is the vix? – MoneyWeek investment tutorials

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Comments

Steve Kaldi says:

SO we are looking for  LOW VIX ???

Benjamin Budts says:

Thx, just what I needed to know, bought several blue chips when vix was at 30b2 weeks ago, made 20percent since. :-)

Navaneetha Krishnan says:

u r awesome bro !

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Salman Khan says:

You seem to know your S&P and i need to know bcz i have been shorting S&P for while now and loosing trades on it. So where do you say its going in this week.will there be correction this week you think and how big it will be.

Johnny Ryefield says:

to learn more I'd refer you to seek information about "vol of vol" or, volatility of volatility" – which is a fascinating statistical science of its own.
And keep watching Tim's vids. he's the best.

Johnny Ryefield says:

but even at the worsts of 2008 crisis, with VIX@80, implying that the SPX options are priced by a 23% swings over the next 30 days, it HAD to come down quickly (this about this kind of volatility in real dollar terms). Do you see it now? volatility is unlikely to stay extremely low for too long (do to fear AND greed of the market nor CAN it stay extremely high for too long (especially if you consider the log-normal distribution of the prices curves, but you should't bother).

Johnny Ryefield says:

I don't know what specific events you referred to in your question or what the VIX was at that time, but understand that volatility is mean reverting and every peak will be followed by a slump because of the nature of funds flow in and out of the market: if VIX@18, it implies that the option market is expecting a 5.2% range fluctuation in the SP500 over the coming 30 days (I can show you the math elsewhere).

Johnny Ryefield says:

regardless – he was dead wrong by saying that. VIX does NOT represent the current volatility. current volatility is a simple statistic which can be calculated on a napkin in 2 seconds with 100% accuracy. just give the time frame you want. That data however, would give you nothing. it is the coming volatility you want to figure out. does VIX give it away? of course not. it gives you market expectations of it.

Johnny Ryefield says:

..and this is to say: the options traders, and their supply and demand of/for option contracts determine the IV of the SPX options series' in question – nothing more. IV is the one big question mark of the options universe, not difference than stock's direction tomorrow. Therefore, VIX cannot warn from black swans or market collapse any better than can the option traders themselves predict such events. And they can't. We speculate and we react. much like stock traders.

Johnny Ryefield says:

I tend to agree with your simplification. However, investors must also realize implied volt' in options is merely the equivalent of supply and demand for stocks: people often confuse IV with other extrinsic value factors. is its name implies, IV is the expected volt' derived from market price of the option, nothing more. This is to say: IV changes with S/D for an option. the more holders bid for a contract, the higher the writers will ask for it, and thus the higher IV the price will imply

Johnny Ryefield says:

I would also strongly discourage retail traders from trying to trade VIX options – they are NOT similar to other equity or index options whatsoever. Black Scholes/binomial pricing models do NOT apply to them and their Greeks are to be calculated differently. Stay away if you are not willing to make volatility trading your sole profession and dedicate years to advanced statistics and mathematics. I have, and it's still way dodgy area of the market for me as well. PS – Tim – wonderful as ever.

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