Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: rubbersoul who wrote (82201)	10/19/2008 2:07:07 PM
From: Real Man	Read Replies (3) \| Respond to of 94695

VIX is volatility, which has direct effect on option prices. When volatility is that high, all calls and puts are very, very expensive, which puts those who sold them in deep trouble. Volatility is only important for derivative markets (IMHO), although it can also be used as a technical indicator - high volatility in a move down equals high fear, record volatility means record fear.

To: rubbersoul who wrote (82201)	10/20/2008 9:38:58 AM
From: Gersh Avery	1 Recommendation Read Replies (1) \| Respond to of 94695

Vix represents the amount of premium priced in a set of options (puts and calls) on a collection of stocks. As fear enters the market place, the amount of premium in the price of options grows. As fear leaves the market the amount of premium lowers. Thus a move up in the vix shows that fear has entered the market. It's almost a numerical representation of the emotional state of the market. Premium: Say I own a call for stock X. X is currently priced at 50. The strike price for the call is 40. A flat value for the call would be $10. IOW That call option and $10 gets me that stock. If the market will buy the call from me for $11 then the premium would be $1. If the market suddenly suspects a reason for the stock to run up in value, then there would be a rise in premium. Jumps in option premiums represent an expectation of rapid movement in stock prices. As expectations for the entire market to make sudden sharp moves grows that expectation is reflected in the vix.