VIX: Fear tells me when to invest

Every investor is interested today when the situation in the stock markets will calm down. He wonders when the end will be meaningless fluctuations in any significant way first. And first volatility, resp. the index that has it, the investor can tell me a lot.

Index VIX as mtko volatility on the third

For several years, the VIX index, which is the implicit volatility for put and call options on the S&P 500 (SPX) index, is traded as a target for market volatility and is traded on the Chicago Board Options Exchange (CBOE).

Simplified, it shows the expected 30-day volatility in markets that are represented by the S&P 500 irokm index.

The VIX Index was established in 1993 and the original underlying assets (until 2003) were the eight most traded put and call options on the S&P 100 Index (OEX).
The VIX index is very often used by open traders. This is because volatility significantly affects the value of open contracts. m is the volatility of the underlying asset, so is the value of the option, because it increases the amount that the option ends in the period of its expiration “in pensions”.

VIX: an indicator of panic and fear

VIX has a generally inverse relationship to stock indices, also when the S&P 500 index rises, the VIX index falls, and vice versa.

Investors use VIX as an indicator of panic or an index of fear. When it is at extremely high values ​​(usually above 30 and 35 points), it is a sign that panic and uncertainty in the markets are at a maximum.

So it is true that those who had the potential to succumb to panic have succumbed to it, and the markets are at a minimum (panic has ensured that all those who succumbed to get rid of their precious rays). Therefore, such values ​​are for many signs that the stock markets are at a minimum and in the near future there could be a reversal and the onset of the growth trend.

Conversely, if the values ​​of the VIX index are minimal (around the level of 10 points), the market will be satisfied and investors will not expect significant movements in the stock. At first, these situations are often silent before.

V anglitin se VIX charakterizuje velmi jednodue: “If VIX is high, it’s time to buy, if VIX is low, it’s time to go.”

He did nothing
Although the VIX index is a relatively reliable indicator of the peak of panic in the market, it is not (like other technical analysis tools) a perfect tool without errors. In particular, the values, which are generally considered extreme, cannot be considered fixed tax and change in relation to the market situation.

During normal development, the values ​​are above 30 points beyond the extreme, today, when the market is in chaos, the VIX index reaches maximum values ​​of over 40 points. The same is true for minimum values, which are usually around 10 and less. Today, however, it means the end of a further decline in action beyond the 20-point limit.

Many critics point out that the interdependence of the VIX index and individual actions (or options on them) is more common. Point out that the VIX index shows the volatility expected in five days, and the maturity of options on individual shares often ranges from two to six months.

Another weakness of the index is that it represents the volatility of the whole market and all its sectors, while the volatility of individual sectors is quite different (the volatility of technological actions is usually you, for example, a title in the utilities sector).

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