I'm starting to get a bearish feeling.
This is usually a good contrary indication.
:^)
Anyhow, here are some thoughts from TSC:
thestreet.com
Options Pros Watch for Danger in the
Comfort Zone
By Brian Louis
Staff Reporter
7/6/00 12:53 PM ET
The collective memory of U.S. investors seems to be
getting shorter, at least if signs in the options market
prove correct.
Sure, June was a wonderful month for tech stock
investors, but its gains brought with them a notable level
of complacency, despite the carnage in tech stocks
less than three months ago. The growing comfort level is
signaling to some that the leg down investors have
experienced early this month may continue.
The Chicago Board
Options Exchange
volatility index, which
is used by traders as
a measure of anxiety
in the market, has
been indicating that the market is getting complacent. In
addition, implied volatility on the Nasdaq 100 unit trust
(QQQ:AMEX - news) has dropped dramatically
compared to levels from a month ago, also suggesting
investors may be getting too comfortable.
Current levels on the
VIX are suggesting to
some traders that the
market could be in for
a bit of a rough patch
going forward. The
VIX has perked up over the last few sessions, but not a
great deal, considering it had fallen recently into the low
20s. The VIX around that area displays that investors
aren't particularly worried about the market, a classic
warning sign to contrarian traders.
Jordan Kahn, of Kahn Asset Management, said he's
been watching the VIX lately because it "has been
getting real low." He noted that the VIX fell down to 22 a
few days ago, and that it hadn't been that low since
March. Usually when the VIX gets down to that level, it
suggests complacency, which can often presage market
weakness, Kahn said.
Not only has the VIX been in a downturn, implied
volatility on the popular QQQ has tumbled a lot over the
last month, Kahn noted. The hedge fund manager
pointed out that implied volatility on the QQQ was
around 79 a month ago and now it's about 41, showing
that investors didn't seem overly concerned with the
potential for another Nasdaq disaster before summer's
end.
Implied volatility is the annualized measure of how much
the market thinks a stock or index can potentially move
and is a critical factor in an option's price.
Max Ansbacher, president of Ansbacher Investment
Management, who sells options on S&P 500 futures,
said the drop in implied volatility "in the last month has
been extraordinary." He also noted that there was
record-breaking volatility earlier in the year and now
volatility is getting back to normal. Ansbacher said it
was his belief is that volatility isn't going to go back to
where it was earlier this year. |
