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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: J.T. who wrote (6007)	1/10/2001 7:26:37 PM
From: LaVerne E. Olney	Read Replies (1) \| Respond to of 19219

VIX Losing Effectiveness? An interesting read on the VIX and description of previous market corrections with magnitude reaction of the VIX, by Bernie Shaeffer at schaeffersresearch.com There is no disputing the fact that there has been a proliferation of various investment vehicles in the last couple of years. AMEX Diamonds (DIA), Nasdaq-100 Trust (QQQ), S&P Depositary Receipts (SPY), sector HOLDRS, exchange traded funds, and others have given institutions and retail customers a multitude of outlets to speculate or hedge their investments. No longer is the OEX the primary investment vehicle for traders. The impact of additional outlets for investors has had a stifling impact on the option volume that the OEX generates. The table below shows the average daily volume of OEX options since 1994. According to my calculations (based off press release data from CBOE), the average daily option volume on the OEX has declined from 325,000 to 70,000 over the last six years, a nearly 80-percent drop. This kind of rotation out of the OEX and into other vehicles is not a development that is unusual in the options industry. History has shown a similar track for the AMEX Major Market Index (XMI), which was a hot index after it was introduced, but then gradually gave way over time to the OEX as the primary vehicle for traders. The result of this declining OEX volume is that this will certainly impact the VIX as an indicator, as option players use other instruments to hedge and speculate. This indicator loses some reliability as the influx of option volume associated with key market turning points that would traditionally have impacted the VIX is being siphoned off by other financial instruments.