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To: jjs_ynot who wrote (41151)	4/24/1998 9:19:00 AM
From: ViperChick Secret Agent 006.9	Respond to of 58727

dwight here is more info on trin To: +robert b furman (17167 ) From: +Jurgen Friday, Apr 24 1998 8:31AM ET Reply # of 17180 Hi Bob, here's a short explanation of TRIN and VIX Taken from Stocks & Commodities, V. 9:7 (293-297): SIDEBAR: THE ARMS INDEX -------------------------------- The Arms index, also known as TRIN or Trader's Index, was developed by Richard Arms in 1967 to indicate when abnormally high volume is accompanying either advancing or declining stocks. The index is based on the assumption that volume tends to swing in the direction of market sentiment. If we are in a bullish atmosphere, volume will tend to be proportionately higher in the stocks that are going up. If the bears are in control, the volume will tend to be proportionately heavier in those stocks that are declining. The formula is a ratio of two ratios: Advances -------- Declines ---------------------- = Arms Index Advancing Volume ---------------- Declining Volume A reading of 1.00 would be a standoff, anything under 1.00 indicates that the up stocks were getting more than their share of the volume and anything over 1.0 indicates that the down stocks were getting more than their share of the volume. But the direction and speed of the changing index values is more important than the absolute value of the index. If the index quickly moves toward higher numbers, regardless of its current reading, it is warning of an impending downward move in the market, and a rapid move in the Arms Index to lower numbers is often a warning of a market rise. The Arms Index was developed for intraday timing but later became popular as a longer-term tool for forecasting market moves.-Editor Taken from Stocks & Commodities, V. 12:5 (198-199): The Volatility Index by David C. Stendahl -------------------------------- David Stendahl explains the volatility index (VIX), which measures volatility based on the implied values of eight Standard & Poor's 100 (OEX) options from which the weighted volatility index is derived when combined. The volatility index (VIX) is a measurement of the market's volatility. It specifically measures volatility based on the implied values of eight Standard & Poor's 100 (OEX) options that when combined calculate the weighted volatility index. The Chicago Board of Options Exchange (CBOE) has been using this index for five years and has only recently made it publicly available. THE BASICS In its basic form, the VIX can help to determine if OEX options are undervalued or overvalued. Nothing frustrates an option trader more than accurately predicting the market's direction, only to lose money buying an overvalued option. Even if the market moves in the trader's direction, he can still lose money if the option was overvalued when purchased. The premium of the option declines in value simply due to supply and demand factors. Unfortunately, many option traders spend more time analyzing the market's direction than they do pricing the specific option. Time constraints and a lack of computer power make it virtually impossible for the independent trader to price an option accurately. The VIX overcomes those drawbacks by allowing traders access to a real-time assessment of the market's volatility. Any broker with access to a quote machine can bring up a current valuation of the index. To make money in the options market, traders must be aware that volatility direction is just as important as price direction. Simply, if traders ignore the market's volatility, they are dramatically stacking the odds against themselves. INTERPRETATION I use daily data for the volatility index from data vendor Dial Data. I then plot 20-day Bollinger bands around the data to help quantify the level of the market's volatility. Bollinger bands are simply two standard deviations using a lookback period of 20 days, plotted above and below the 20-day moving average. This is not a foolproof valuation method, but it does offer traders a method by which to measure the market's volatility on a real-time basis. When used with Bollinger bands, the VIX is easy to understand and gauge. The VIX moves between the upper and lower bands, stopping periodically at the 20-day moving average for support or resistance. When the index is near the upper band, option prices are considered to be overvalued. This should be considered a selling opportunity. However, when the index is near the lower band, options are considered to be undervalued or at least fairly priced...