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Strategies & Market Trends : Systems, Strategies and Resources for Trading Futures -- Ignore unavailable to you. Want to Upgrade?

To: keith massey who wrote (27952)	7/18/1999 1:41:00 PM
From: GROUND ZERO™	Read Replies (1) \| Respond to of 44573

Those are great questions... I don't pay much attention to the VIX for the same reason, it's too confusing and not reliable enough for me..... maybe, I'm missing something big there, but WDIK.... it should be interesting to see how it develops over the next few weeks and months..... GZ

To: keith massey who wrote (27952)	7/19/1999 11:20:00 AM
From: John Pitera	Read Replies (1) \| Respond to of 44573

Keith, I have given thought to this as well. For those that don't know - the VIX is constructed using the implied volatilities of eight near-the-money, front- and back OEX calls and puts. It makes sense that during crashes the VIX skyrockets as people rush out to buy Put options. However if the market is going up and the VIX is dropping it is supposed to mean that the market is meeting the rise with complacency. I agree that less Puts would be bought on the rise....but wouldn't people be buying more call options??? This is where I am puzzles. If the S&P breaks out of a trading range and starts to go higher but VIX continues to drop...what is causing the drop. Less Puts are being bought but wouldn't more calls also be being bought? The VIX closed Friday at its second lowest reading in over two years. I believe that the VIX goes down when the market is rising due to the fact that the market rises in a slower more methodical plodding manner, hence even if you buy calls it's a bit harder to make money on your calls even with a lower VIX. The market declines very quickly in time and gives a big price drop. The call volatility go up when the prices go down as with stocks at depressed prices they can have huge snap back rallies. Look at Lu. It fell from 60 to 30 last fall and then from Oct 8th it went and doubled by the start of Jan. So the VIX should have been higher when we went down and it should have been medium high even as we go into Nov 1998 as the prices were still moving back up quickly . the market made very little upside between the start of April and July 17th last year,but there was no downside hence the ever decreasing VIX into the mkt on July 17-20 1998. The mkt has wrung out the volatility in terms of quick 3 days moves this year as well. We almost certainly will be putting in a top for the year in the stock right in this time window, we may not see top tick until the end of July or 1st part of August, but the "stars are aligning" for such a price and time reversal point. John