Read It Here First: VIX Says No Panic -- Yet

Friday, June 27, 2008 | 03:30 PM

On Monday, we showed a one year chart of the VIX versus SPX. We noted that the VIX had stayed relatively modest, implying that a tradable bottom had not yet been made. On Tuesday, we noted the longer term, 10 Year VIX versus SPX.   

Today, we see both the WSJ and Bloomberg observing the same thing:


It felt like a panic. As the Dow Jones Industrial Average tumbled to a 2008 low, spooked investors flocked to the relative shelter of Treasury bonds. Gold, another place where investors search for safety, also jumped in price. In all, the moves were reminiscent of wild selloffs in January and March.

But something's different this time. A key panic gauge is still relatively cool: the Chicago Board Options Exchange's volatility index, also known as the VIX. This is a measure of how much investors are willing to pay for stock options, which they can use as protection in times of uncertainty. It tends to rise in worrisome times.

The VIX did jump Thursday to 23.93, a one-day gain of 13%. When stocks were selling off in January and March, the VIX went even higher -- closing above 30 each time.


The most-watched gauge of price swings in U.S. equities indicates stocks have further to fall after the Dow Jones Industrial Average declined to the lowest level since September 2006.

The Chicago Board Options Exchange Volatility Index, or VIX, rose 13 percent to 23.93 yesterday, leaving it 26 percent below the 2008 high. The Dow is poised for the worst June since the Great Depression after record oil prices and credit-market writedowns sent the average to its biggest drop in three weeks...

The volatility index, which traders sometimes use to forecast price changes in the Standard & Poor's 500 Index, closed above 30 for the first time this year on Jan. 22 after stocks retreated to a 16-month low. The VIX reached a five-year high of 32.24 on March 17 when the S&P 500 traded at its lowest level of 2008, the day after the Federal Reserve led a bailout of Bear Stearns Cos.

The VIX is derived from the cost of options used to protect against declines in the S&P 500 and usually increases when stocks slip. Its climb above 30 in January and March marked bottoms for the benchmark index for American equities and preceded rallies of 3.3 percent and 7 percent in the following months.


VIX Picks Up But Not to Level Of Stocks' Licks
Mark Ggongloff
WSJ, June 27, 2008; Page C1

VIX 26% Below 2008 High Points to U.S. Stocks Drop
Elizabeth Stanton and Jeff Kearns
Bloomberg, June 27 2008

Friday, June 27, 2008 | 03:30 PM | Permalink | Comments (16) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Bloomberg TV just had a good interview on the VIX. The guest said the gauge doesn't have to move for the market to continue to sell off. Rather, the VIX is more of a panic rush.

I know most folks know the latter, but the former (ie a slow, continuous melt) I wasn't aware of.

Posted by: Chief Tomahawk | Jun 27, 2008 3:48:47 PM

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