VIX is in a 2 year =>buy straddles or strangles
De Lissnyder Rudy
VIX is a CBOE Volatility Index
It's range the last two years is between 20 and 30 (with exceptional 35 and
40 peaks)
This means cheap options,it could be time to buy straddles and strangles now
that can take profit with rising volatility.
Or setup other strategy's that can take profit of a rising volatility next
months.
Kind Regards Rudy,
MarketCompass
As options market makers we watch this very closely.
The last time it got to 16 was just before the Asian Flu correction of
98 and the Volly exploded right after that.
MarketCompass
The VIX index, the CBOE measuring indicator of the OEX implied
option's volatility, is hitting an eye-opening bottom. The VIX is used
to measure two important factors.
First, it is used to give us an idea of the general market option's
premium, 20 is very low, while 30 is the high range. This indicates
how the options premiums (over intrinsic value) are priced
historically.
Second, it is a contra indicator for market direction. When the VIX
gets very low below 20, this usually indicates that the general market
has been moving in one direction for a while or sitting in a narrow
trading range. When the VIX gets very high, 35+, this usually
indicates the market is in a volatile state, usually a correction.
So where does the VIX go from here? Well, it is generally believed
that the market is due for another correction. The last large volatile
correction was the "Asian Flu of 98". The VIX at the time hit a 16
before the market sold off. At the time options market makers loaded
up on contracts waiting for something to happen. The VIX gave us a
two-week window below 20 - a great warning of the increasing
volatility to come.
Then again the VIX could move lower as the market slowly moves higher.
It is wait and see, but if the VIX gets below 20 something is bound to
happen - eventually.
Keep your eye on the VIX.
MarketCompass
The VIX measures implied volatility of options in the OEX. An options
price is made up of two important components:
The Intrinsic value, which determines how far in-the-money the option
is - (actually the equity value of the option)
And
The Premium value (a.k.a. Time Value), which it the price over
intrinsic value.
Example:
Stock trading 43
The September 40 call is trading 5
The intrinsic value is 3
Stock 43 - Strike Price 40 = 3
Premium = 2
Option Price 5 - Intrinsic Value 3 = 2
The premium value is determined by a couple of important factors 1st
is how much time is left in before the option expires. The 2nd factor
is Volatility.
If the option market maker believes that there is a volatile event
approaching he raises the volatility which increases the premium, thus
increasing the overall price of the option.
If there is nothing going on or the market is slowly moving in one
direction the market maker lowers volatility which decreases the
premium, thus decreasing the overall price of the option.
(Note: order flow and volume can also change volatility)
You can measure the implied volatility of the options for any
particular stock.
When an investor wants to see how the over all stock market is doing
he looks at an index, like the INDU or COMPQ. This gives the investor
a broad sense of what the market is doing.
If the investor wants to see how the over all options premium is doing
he look at the VIX index, which measures the option's premium of a
broad based index the OEX (S&P100)
Options market makers frequently watch this to get a sense of how the
overall option's premium is doing in the market place.
Historically if the market is flat or moving slowly in a bullish
direction, the VIX drops. Meaning that the option premium in the
general market is dropping.
Historically when the VIX drops below 20 this is consider being very
low and market makers are loading up on contracts anticipating a
volatile event will approach.
Remember the VIX can not go to 0 = this would mean that all options
are trading at there intrinsic value with no premium.
Options will always have premiums attached.
When the VIX is really high 35+, the market is in a correction and
option premiums are very high.
It is a great tool for analyzing market volatility. Just like using
indices to measure general market trends.
Hope this helps.
NOTE: VIX is calculated by taking the average of the front months 4
calls and 4 puts whose strike prices are closest to the underlying.
Scotch
When VIX is low its time to go. When VIX is high its time to buy.
So what will you do ? My models require crazy volatility to be of
any use so they are out. The "smart money" says that we usually tag a
recent low in October and things are running high right now. I think
that the market has priced in any potential greenspasms unless the
FOMC does something really unexpected next week. I think that once
the FOMC announces we'll have a nice little selloff since we've already
had our rally.
Time to load up on PUTS for your favorite index ? Maybe a OTM lottery
ticket or two ? QQQ SEP 84 puts are just about a buck each. Assuming
nothing big happens today you can move up a strike or two for the same
buck on Monday.
in...@marketcompass.com (MarketCompass) wrote in
<399c5a6d...@news.pacbell.net>:
rfo...@my-deja.com
in...@marketcompass.com (MarketCompass) wrote:
> How low can it go?
> The VIX index, the CBOE measuring indicator of the OEX implied
> option's volatility, is hitting an eye-opening bottom. The VIX is used
> to measure two important factors.
> First, it is used to give us an idea of the general market option's
> premium, 20 is very low, while 30 is the high range. This indicates
> how the options premiums (over intrinsic value) are priced
> historically.
> gets very low below 20, this usually indicates that the general market
> has been moving in one direction for a while or sitting in a narrow
> trading range. When the VIX gets very high, 35+, this usually
> indicates the market is in a volatile state, usually a correction.
> So where does the VIX go from here? Well, it is generally believed
> that the market is due for another correction. The last large volatile
> correction was the "Asian Flu of 98". The VIX at the time hit a 16
> before the market sold off. At the time options market makers loaded
> up on contracts waiting for something to happen. The VIX gave us a
> two-week window below 20 - a great warning of the increasing
> volatility to come.
> It is wait and see, but if the VIX gets below 20 something is bound to
> happen - eventually.
>
> Keep your eye on the VIX.
Closed at 19.42 on Friday, a new low. Waiting to see something happen.
>
> On Thu, 17 Aug 2000 18:15:57 GMT, "De Lissnyder Rudy"
> <rudy.de....@pandora.be> wrote:
>
> >Hi,
> >
> >VIX is a CBOE Volatility Index
> >It's range the last two years is between 20 and 30 (with exceptional 35 and
> >40 peaks)
> >
> >This means cheap options,it could be time to buy straddles and strangles now
> >that can take profit with rising volatility.
> >
> >Or setup other strategy's that can take profit of a rising volatility next
> >months.
> >
> >Kind Regards Rudy,
> >
> >
> >riet...@hotmail.com
> >
> >
> >
>
>
Sent via Deja.com http://www.deja.com/
Before you buy.