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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (61600)	5/22/2006 11:41:25 AM
From: orkrious	Read Replies (3) \| Respond to of 110194

VIX Jumps Again By Steven Smith Senior Columnist 5/22/2006 11:15 AM EDTSelling is back in full force today, with liquidation of commodities continuing apace. thestreet.com The VIX has jumped another 10% to 19.05, its highest level in over 20 months. Some recent posts and comments have been looking at how the VIX options get priced, and I noted that all the future months on which the options are based had been trading at a discount to the cash index. This morning the August and November futures are up only fractionally to just above a 15 reading. The November $12.50 calls are the most active with 3,000 contracts traded this morning, and even though the value of the "cash" or spot VIX index has jumped over 50% in the past two weeks the price of those options is basically unchanged at $3.20 over the same time period. This confirms two points I've made earlier about VIX options: When the VIX was below 12 the safe way to play was to buy calls or sell puts since the likelihood of an implosion much below 10 was minimal, but that because the options are based on a futures contract that has reversion-to-the-mean tendencies the pricing behavior of the options will be dampened. In isolation, this makes it very difficult to use these options as an effective market hedge or way to play changes in volatility I'm surprised to see these futures trading at such a discount.