John Lounsbury

Two Ways to Interpret the VIX

Good article and good comment. There is one other term (not discussed by Alex or 305589) and that is "exhaustion". VIX can fall without an immediate bottom forming if it reflects only shrinking selling pressure without a concommitant rise in buying pressure. This would be indicated if VIX is falling over many days (or even weeks) with low (and especially falling) NYSE and NASDAQ volumes. This would be the slow, painful bottoming process mentioned by 305589. Rather than a high volume, washout bottom (a "boom"), bears can also die with a tired whimper.


On Nov 28 03:11 AM User 305589 wrote:

> I'd like to remark that being bearish/cautious/fearf... certainly
> isn't a contrarian position at this point, but just reflects the
> broad sentiment. so being afraid that the vix signals more pain ahead
> for stocks would certainly not qualify anyone as vbeing a contrarian.
>
> second, the vix might drop - but this is no guarantee equities will
> rise. it could well happen that equities head lower still without
> the vix confirming this. a slow, painful bottoming process, if you
> like.
> a value investor couldn't care less, though. all he needs to know
> is what businesses are selling at ridiculously chep prices. and that
> selling volatility (protection, puts) at this point makes a lot of
> sense. whether stocks drop another 10, 20 or 30% is rather irrelevant
> for the longer and bigger picture imho