Jordan Kahn

Despite Down Day for Stocks, VIX Creeps Lower

this was a great call on the VIX. wish I had bought those puts!!


On Apr 08 09:25 AM Mad Hedge Fund Trader wrote:

> And it will continue to do so. There is a great debate raging in
> the markets right now over the stubborn persistence of the volatility
> index (seekingalpha.com/symbo...) remaining over 40%. Is
> it still too risky to go back into the market? Are we going to new
> lows? Is the next big move an updraft or a downdraft? Part of the
> confusion springs from a misunderstanding of what the VIX is. It
> is just a mathematical guess about how big the next move in the market
> will be. A 40% VIX implies that one out of three days will see a
> 2.25% palpitation, and once a month we will suffer a 4.5% gyration.
> You can have the market drop 10%, rise 11.1%, remaining unchanged,
> but still generate a tremendously high VIX. The equation doesn’t
> care what the direction is. VIX unfairly picked up a bearish connotation
> because of the panicked rush by long side only investors to buy downside
> protection in falling markets, driving put implied volatilities through
> the roof. This is why investors associate a high VIX with falling
> markets. In the end, this debate can only be resolved in one way,
> and that is to the downside. Smart hedge funds are now shorting out
> of the money calls on VIX. VIX will crash when markets go to sleep,
> as they inevitably will. Be careful what you wish for. Traders don’t
> pull down million dollar salaries playing “Solitaire” on their computers.
>
>