Two Veteran Perspectives on the Vix

While I wait to see if the VIX might find a new floor in the 30-35 range, I notice that two veteran VIX aficionados, Bernie Schaeffer and Larry Connors, are talking about their current views on the VIX.

Starting with Schaeffer, in Examining the Technicals of the CBOE Market Volatility Index (VIX), the veteran options strategist outlines several of the factors that are influencing his recent thinking on the VIX. Republished from a mid-December subscriber note, Schaeffer’s thinking includes:

• Possible support at the ‘half high’ level of the VIX (50% of the November peak of 89.53)
• The importance of round numbers (a VIX of 50)
• Long-term moving averages (40 week and 80 week)
• Sector correlation (especially commodities vs. financials)
• VIX relative to SPX historical volatility (20 day HV)

David Penn, Editor in Chief at Connors’ TradingMarkets.com, weighed in earlier in the week with In Defense of the VIX, a response to a Bloomberg article by Jeff Kearns and Michael Tsang. Penn favors a relative VIX to an absolute VIX and cites the familiar Connors 5% rule, in which investors should be long the market when the VIX is 5% or more above its 10 day simple moving average and short when the VIX is 5% or more below the 10 day SMA.

For those who are interested in learning more about the Connors approach, Short-Term Trading Strategies that Work has some interesting ideas and is a worthy successor to How Markets Really Work: A Quantitative Guide to Stock Market Behavior.

Comments

[Anthony Alfidi:]

Numberical analysis of VIX should incorporate news events. It would be interesting to see whether the VIX spiked on the days when Fannie and Freddie were nationalized, Lehman collapsed, etc. We may be in for a much higher VIX floor if those surprises continue.

Jan 02 03:34 PM

[Diane Graziano:]

2009: The market will decline by another 30% and if it can maintain a floor there,consider fortune has smiled.The "VIX" is an outdated model and was flawed from the beginning.It was an experiment as were 4,000+ statistical formulaics
attempting to "capture'"risk."Cluste... worldwide,brilliant,
"influencers",are converging and designing 21st C.strategies.Americans have no choice but to "sit' in their MF'S ,so they think.I recommend"treasuries" that is it, the 'best' of a very poor lot.

Jan 02 06:10 PM

[PUNK:]

All I know is all the Call options I wrote 8 weeks ago collapsed in price due to the low VIX.

Jan 03 01:22 AM

[1977°C:]

What happened in 2008 in the stock market, will change the investors perception of risk for 1 full generation.
People who were inside the stocks investing anl lost all their money in 1 year, will never make the same mistake again, they will become super conservative for the rest of their life span which is about 20-30 years on average.
Only the new generation, those who are today 1-10 years old will participate actively in the next bubble.
VIX of 90% never happned before which probably means that investors got knock-out in the head and will not recover.
I advise all to keep away from buy&hold style, if you can't daytrade around all that moves and have liquidity, buy 10-30 government bonds and retire with this money as stocks will not beat bonds for years and years.

Jan 03 01:15 PM

[Rob Viglione:]

VIX is an excellent equity hedge. When VIX was trading in the 70-80 range I sold puts as a credit spread hedge, but with the index trading below 40 I've been loading up on calls for similar exposure.

Jan 03 05:10 PM