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Pastimes : QQQ & DIA - chat & chart
QQQ 623.23+2.2%Nov 10 4:00 PM EST
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To: Jon Khymn who wrote (484)4/16/2003 5:45:19 PM
From: Jon Khymn  Read Replies (1) of 795
 
*** 1. VIX *** <Simple description on VIX>

There are many indicators that trader's follow to try to predict market bottoms and market tops. There is never just one indicator that tells the whole story, but one that you might want to add to your arsenal, if it is not already there, is the Market Volatility Index (VIX). This index was established by the CBOE in 1993. The VIX is a measure of stock market volatility and uncertainty.

Although the VIX is only a general measure of volatility in the OEX, trader's use this as a general indication of index option implied volatility and as an indicator of volatility of the U.S. equity market.

When the VIX is at a low value in the teens, it indicates complacency in the market - there is not much fear. This tends to be a bearish indication for the market. The VIX hovered around 20 in January 2000 when the DOW peaked.

The VIX goes up when there is a lot of fear in the market because option traders are willing to pay a higher premium when they purchase options. Higher option premiums result in higher implied volatilities (driving the VIX higher).

The VIX can be used to help determine market bottoms. During October 1998, when there was a lot of fear in the market, the VIX reached a high value of 60 and the market bottomed. Market bottoms generally occur when fear reaches its highest point. So when the VIX reaches its peak, it is a bullish indicator.
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