Wednesday, July 15, 2009

S & P 500 & VIX

Today, there was something in the market that was very interesting to watch. The correlation between S & P 500 and the VIX. I had read some interesting articles that doubts on the possibility of making technical analysis on indexes like the VIX, but I consider this findings very useful.

Today, we could see the VIX rising as the S & p500. I try to look for the last time this happen, and finally I found something in August 2008.

In addition, the divergences in the ROC (Rate of change) are very similar as the structure of the movement in the S & P 500.

Here I attach the chart. I do not reach any conclusion yet. But, if we relate this with the definition of the VIX, it looks like the investors do not believe in this prices movements, and are paying higher prices to cover their risks in prices changes. The other possibility could be that the correlation between markets and VIX is changing.

VIX is the ticker symbol for the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. A high value corresponds to a more volatile market and therefore more costly options, which can be used to defray risk from volatility.If investors see high risks of a change in prices, they will require a greater premium to insure against such a change by selling options. Often referred to as the fear index, it represents one measure of the market's expectation of volatility over the next 30 day period.

If you want to read more on the VIX, click here.


Related documents:

http://www.cboe.com/micro/vix/vixwhite.pdf

http://vixandmore.blogspot.com/2007/05/high-positive-correlation-between-vix.html

3 comments:

  1. how did u get those types of charts to overlay?

    ReplyDelete
  2. Hi moogle, here I attach the links:

    VIX:
    http://stockcharts.com/h-sc/ui?s=$VIX&p=D&yr=1&mn=2&dy=0&id=p02487409673

    S & P 500:

    http://stockcharts.com/h-sc/ui?s=$spx&p=D&yr=1&mn=2&dy=0&id=p02487409673

    ReplyDelete

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