I would debate that they are not priced off the cash but the future.
That is, off the SP7Z and not the SPX. Why is that? Because...although there are those that say the dog wags the tail it seems that the tail wags the dog. Unless there is a major problem with some crucial stock, sector, or whatever, the futures lead the cash.
As the futures move up the PREM moves up with it and only starts to come back towards fair value as the cash catches up. One rarely, if ever, sees the PREM go down as the cash rallies ahead of the spoos.
The future always is worth more than the present so if the spoos are going down, the PREM is going down. If the PREM is going down, sure as shootin' the cash is going down. PREM is a short-term indicator....I watch it in 5 minute ticks in a chart positioned exactly under the TIKI which is exactly under the SP7Z. TICK is another reliable indicator....at certain levels one will see resistance/support. These levels change from day to day. Extremely high/low TICK readings provide excellant turn signals.
VIX----I'll see if I can dig up a chart on VIX somewhere and e-mail it.
VIX, if I remember the method exactly, is an indication of volatility by determining the premium in 8 options. The 2 near calls in the current month, the 2 in the next month, and the 4 opposing puts.
Off hand....the VIX had levels around 15~20 last Spring and now is running 30~40.
I'll check around for a chart that may be emailed and also see if I can find a more precise definition around this firetrap I call an office. |
