The Curious Case of Market Up, Fear Gauge (VIX) Up
Something strange is going on in the markets. I know Halloween has just passed but no, it has nothing to do with any paranormal activities. It is typical that the Cboe Volatility Index $Cboe Volatility Index(VIX)$ trades inversely with the stock market, however, on Friday, I noticed the US stock market (Dow, S&P500, Nasdaq) closed in the green while the VIX surged higher. In fact, the VIX closed at $16.48 or 6.74% higher. That is unusual.
The VIX is known as the market’s fear gauge. Basically the market prices of S&P 500 put and call options are used to calculate the market’s expected volatility in a 30-day time frame. With the VIX surging up, this could reflect that investors want to protect their portfolio and therefore they drive up the prices of put options, resulting in the increase of the VIX. Conversely, if the market rises, the demand for put options are lesser, resulting in the decline of the VIX.
It is reasonable to imply that with both the VIX and S&P 500 $S&P 500(.SPX)$ moving in the same direction, a reversal could be on the horizon as the market rally appears unconvincing. The market rally can be said to be real and convincing when the VIX declines along as the market climbs higher (by the way, you can look at S&P 500 vs VIX charts that prove this point). Oh It is also worth mentioning that options trading tend to pick up speed at the end of the year which could also explain the strange moves in the VIX.
As the VIX swell suggests, err on the side of caution is not a bad decision.
Tigers, would you agree the VIX is a good indicator of a buy or correction signal? Would like to hear your thoughts. @Tiger Stars
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- EricVaughan·2021-11-09Indeed, I think this is related to the psychological factors of investors. It is undeniable that I have similar ideas. When the market rises for a period of time, I am very worried that one day it will suddenly fall. So when my earnings reach about 10%, I will sell stocks. At the end of the year, I will also tend to sell stocks, because I am worried that I will suddenly release some bad news on the day when I can't trade, and I can't trade.2举报
- JackPowell·2021-11-09I also value volatility, but I choose to build my own model. Although VIX index is highly representative, it still needs to be analyzed on a case-by-case basis, and the application of different stocks is different.🤔🤔🤔😊😊😊2举报
- yansuji·2021-11-09🙋Perhaps investors expect that the future trend is very uncertain,🤔 and there will be unstable factors, so generally adopt a conservative investment strategy.2举报
- MariaEvelina·2021-11-09There are too many uncertainties in the stock market, and one indicator is not always right. So don't put too much faith in one metric.🙃2举报
- MamieBenson·2021-11-09The fear index is the same as the stock price of the market. This is my concern. This is a very interesting phenomenon, which may be explained by behavioral finance.2举报
- BlancheElsie·2021-11-09We haven't paid much attention to this kind of index before, can you talk about the normal situation? Which stocks did this affect? Sorry, I'm new at this.🤣1举报
- BartonBecky·2021-11-09I also noticed this strange phenomenon, which had never happened before when predicting volatility, so I shorted my stocks.🤣1举报
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