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Strategies & Market Trends : Stocks Crossing The 13 Week Moving Average <$10.01 -- Ignore unavailable to you. Want to Upgrade?

To: Sergio H who wrote (5970)	4/5/2000 1:39:00 PM
From: James Strauss	Read Replies (1) \| Respond to of 13094

VIX... Sergio: VIX is something not to be rubbed on one's chest... : > VIX is a measure of market volatility at extremes... Here is more detail: *************** Market Volatility Index (VIX) The Market Volatility Index (VIX) measures the volatility of the market. A recent news story described it as "the options market's gauge of investor fear." The VIX is constructed by taking the weighted average of the implied volatility of Standard & Poors 100 Index calls and puts. The VIX doesn't measure the volatility of any individual stock or option; traders use it as a general indicator of market volatility and sentiment. The VIX is an inverse indicator. High numbers mean that there's excess bearishness, and low numbers indicate excess bullishness. The VIX is updated intraday by the Chicago Board Options Exchange (CBOE), using Standard & Poors 100 Index (OEX) bid/ask quotes. It was created in 1993. For more details, see the CBOE website. stockcharts.com *********** Implied Volatility Implied volatilities are a measure of the "relative" cost of an option and are loosely based on the actual (historical) volatility of the underlying security. In essence, implied volatilities are driven by market expectations of the underlying stock. For example, let's look at a stable blue chip stock (A) and a newly issued technology stock (B),which are both priced at $50 per share. If the price of an October 50 call option is $2 for stock A and $4 for stock B, speculators are anticipating that stock B's price will fluctuate more than stock A. As a result, the stock B option has a higher implied volatility. To predict future market moves we must examine the implied volatilities for the underlying market. To make this approximation, we examine the options on a broad market index. In the June 1997 issue of The Option Advisor, we talked about the options on the S&P 100 Index (OEX). OEX options account for over half of the volume of all index options traded in the U.S., making them by far the most liquid options available on the market. Therefore, the implied volatilities of OEX options are the most accurate measure of the broader market's volatility, and, consequently, will enhance our ability to more accurately predict future market movement. The Chicago Board Options Exchange (CBOE) Market Volatility Index (ticker symbol VIX) reflects the implied volatilities of the underlying market. The VIX is a market consensus forecast of future stock market volatility over the next month. The VIX is constructed using the implied volatilities of eight near-the-money, front and back month OEX calls and puts to create a hypothetical option that is always at-the-money and has exactly one month until expiration. The implied volatility of this artificially constructed option (the VIX) has been shown to be an accurate predictor of subsequently realized stock market volatility. Since the VIX is relatively new (introduced in 1993), few analysts recognize the value it adds to sentiment analysis. The VIX's reaction to a short market pullback of a few hours or a few days is an excellent indicator of how market participants are currently reacting to the market and what they expect will follow. If market weakness is met with an increased demand for puts, the VIX will spike upwards. Such spikes are a telltale sign of fear in the market- a very healthy and bullish view for expectational analysts; speculators will tend to buy puts after they have sold out of their long positions. This often signals an end to short-term selling pressure. If the VIX does not increase on a pullback, it signals that the public is meeting the market downturn with complacency and has expectations of a quick recovery. In these cases, there is often more downside motion to follow. As such, the VIX plays a key role in our ability to predict future market performance. stockcharts.com Jim