Looks Like Fear and Uncertainty are Subsiding

This chart (click to enlarge) tracks the implied volatility in equity and T-bond options. That in turn is a function of the market's fear and uncertainty. When implied volatility is high, investors are willing to pay a high price for the safety of options (because owning an option significantly reduces your risk exposure relative to owning the asset underlying the option). The significant decline in implied volatility that we have seen since October is very encouraging. Markets hate uncertainty, so as uncertainty declines, prices tend to rise, and that is exactly what we have been seeing in all markets.

This directly contradicts those pundits that are predicting that we are only in the initial stages of what will prove to be a devastating global depression.

Comments

[bs_o_meter:]

"This directly contradicts those pundits that are predicting that we are only in the initial stages of what will prove to be a devastating global depression."

What are you smoking?

Jan 09 04:38 AM

[ChipSeal:]

So you think that a MOVE index of over 150 and a VIX of over 40 indicates a lack of fear and uncertainty? Oh yeah! Calm sailing ahead, no doubt!

Jan 09 09:47 AM