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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: regli who wrote (34282)	7/27/2005 10:22:05 AM
From: mishedlo	Read Replies (3) \| Respond to of 116555

Questions on the VIX Mish: I watch the VIX and the VXO pretty much every day. I notice the spread between them to widen and then shrink over and over and over again. There is now about a 10% difference between the two. The VIX is 11.05 the VXO is 9.96. What is it about 100 stocks that would have less volatility than 500 stocks? Is it just a function of bigger names, or is it the composition sector weighting that is different, or both? Would you expect one to be more volatile than the other looking ahead, and if so given there are no VXO futures, how would one take advantage? Do you see any theoretical plays in this regard? I do have questions on VIX futures as well. The August VIX future is 124.00 by 124.70 (bid ask) The October VIX future is 140.60 by 141.90 Meanwhile I see the VIX is at 11.00 on the nose (110.00 if by my assumption it needs to be multiplied by 10) Why would the VIX Future for August be 124 if the VIX is at 110? When do VIX futures expire anyway as I am having a terrible time getting any information on these. I guess it would make sense they expire right along with S&P options (third Friday of the month at the open) but that is a guess. At expiration (assuming we expired in a week with nothing changing) would those futures trend towards 110 and then expire there? I guess I am trying to figure out the difference between 110 and 124 and why it is so great. Do you even consider that to be a big spread? The contango is even worse looking at October. Does the combination of factors make it hard to trade these things? Certainly the Contango would make buying calls a very tough proposition IMO, unless things got really ugly. If one was inclined to play this as a long term position would it seem better to play the front months and roll them over or go further out and pony up. My instinct is for the former given the contango and the fact that we just may (someday) get a huge spike in volatility in the leading contract. If there are any other issues that you can think of that I did not ask, I would appreciate comments as you think of them. As I said, I am having a terrible time getting information about the VIX futures so your help in understanding this would be greatly appreciated. Thanks Mish John Succo - Minyanville: The CBOE uses different methodologies to calculate the VIX and VXO – it is not the same calculation with a simple change of SPX for OEX. One of the differences is in which options are used in the calculation. The VIX (SPX) always uses a fixed 30 days to expiration and weights near term and next term options accordingly. The VXO (OEX) uses equally near and next, and once per month rolls them. This will cause a gradual shrinking followed by a spike in the spread between the two in a rising term structure environment (options out the next month have a higher implied volatility than the near month options). For this reason, the VXO will always be more volatile than the VIX unless the term structure is flat. I don't believe there is a trade to take advantage of this anomaly. The VIX calculation is currently weighting August SPX options much more heavily than September SPX options. As times passes, September will garner an increasing weight and on August expiration the September month options will be nearly all the weighting. Since September volatility is 1 ½ to 2 points higher than August volatility, the August VIX futures will trade at a premium to spot although it is in line with the contract underlying. The last trading day for VIX futures is the Tuesday prior to option expiration and the settlement price is determined the next open (Wednesday).

To: regli who wrote (34282)	7/28/2005 5:56:23 AM
From: shades	Respond to of 116555

This is a great point regli - I have been told by people over at the krugman board that to fix our housing and demographic issue in the states we need to open the floodgates to uneducated third worlders - I think bush is doing this to win elephant votes and I completely disagree this is good policy. I think the person on the krugman board has an agenda in getting his friend hose over here to the promised land. I have argued we needed less ayn rand types going to work and helping to make new kids - but they just call me a male pig for that - hehe. A college level parent is probably better than an uneducated migrant. Perhaps in the past when america was a growing agricultural power letting in these types of people was actually very good for the country to use up her vast agricultural resources - but the future is information and knowledge - not plowing dirt eh? Letting these young uneducated in is going to set us back for at least 2 generations. One generation to mesh with the dominant culture and language, another to get up to par for college level education. I had not been to the palm beach area in awhile, but seeing what letting a huge influx of uneducated unskilled foreign people in has done to this area saddens me for the nation as a whole if it is like this everywhere. I heard some policymakers say first we need to reverse visa policies so more educated students and workers can stay in america, bill gates addressed this and then if we must import immigrants from the third world for demographic sustainability issues - to set up programs for them to be educated in thier home country or at the borders before they come over here into the promised land. That seems like good policy to me. Sending them here with no skills, not being able to speak english, not even elementary education is breaking this city. So many are coming in too such concentrated areas they are bringing in thier culture, getting entrenched, and not able to average up to the city standards that were once here in palm beach county. Little mexico is encroaching on what used to be one of the nicest places in florida. I have seen a beautiful well maintained cosmopolitan city in certain parts turn into worse slums than I saw in mexico last year because of these opened floodgates. People with these agendas to open the floodgates even wider without considering the costs to the middle class already here probably live so far up in the ivory towers they don't feel the pain. Why educating these people outside the borders before we bring them over is not an option to them I do not understand, it is in everyones best interest - if we let them come here and get entrenched in little mexico where they will never get educated beyond what little they have from home - how does progess ensue?