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

To: Follies who wrote (13988)	2/9/1998 7:48:00 PM
From: William H Huebl	Read Replies (2) \| Respond to of 94695

Dale, You can get CBOE's definition of VIX by going to THEIR site... here are some other thoughts I have picked up along the way about VIX. A measure of stock-market volatility that is widely followed by brokers is predicting more sharp turns in the Dow Jones industrial average, possibly with a few one-day swings of 400 points up or down. The index, computed at the Chicago Board Options Exchange, has become one way traders try to convert market sentiment to a hard number. Known as the CBOE Volatility Index, it's popularly called the VIX, for its ticker symbol. The VIX is giving its highest readings since it was introduced in 1993. Traders said the index has become an accurate marker of shifting moods among investors, which sometimes--but not always--indicate where prices will head. The trick is anticipating when the index will change direction. ''When it spikes, you've generally hit the top or bottom of the market and things will start going the other way,'' said Hank Nothnagel, senior vice president of Everen Securities Inc. The VIX is based on premiums paid for the CBOE's options on the Standard & Poor's 100 index, a contract that is the most popular hedging tool for stock investments. At a current reading of 34.46, the VIX essentially is predicting the market will rise or fall by 34.46 percent over the next 12 months. Probability calculations based on those data show that the Dow could exhibit 400-point moves about once every three months, said Robert Whaley, a professor of finance at Duke University and the inventor of the index. He said the index tells investors that 100- and 200-point moves will continue to be common. At one point during the market's 554-point sell-off on Monday, the VIX hit a reading of 55, unprecedented except for calculations going back to the 1987 stock market crash, in which the figure exceeded 100. Early this year, the VIX was in the high teens to mid-20s. It closed Monday at 39.96, declined on Tuesday but rose again Wednesday and Thursday. The index picks up on a key feature of options pricing--the premium that investors pay for an option reflects assumptions about future risk, said Joseph Levin, vice president of marketing for the CBOE. The higher the price, the higher the implied risk. Thomas Ascher, a trader and the CBOE's vice chairman, cautioned that the VIX's value comes in measuring volatility, not future stock prices. Hence, traders pay more attention to the VIX's direction up or down than to its absolute number. Don't know where I got it back last November but it certainly has some interesting thoughts. Currently, MY indicators based on VIX are (VERY) short term buy with a longer term 5% sell-off expected down to the 7,700 level. Bill