What is VIX? How Market Volatility Index affects Markets?

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What is VIX? How Market Volatility Index affects Markets?

Post by Dennis Ng »

What is VIX? And why should you bother?

http://en.wikipedia.org/wiki/VIX

VIX is the ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30 day period. The VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the next 30-day period, which is then annualized. The VIX Index was developed by Prof. Robert E. Whaley in 1993 and is a registered trademark of the CBOE.

You can check the current Vix here:
http://sg.finance.yahoo.com/q?s=^VIX
Cheers!

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Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
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Re: What is VIX? A Market Volatility Index, and what it mean

Post by alvin »

I was looking at buying VXX or VXZ to hedge against market crashes.

VIX is at record low now...
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Re: What is VIX? A Market Volatility Index, and what it mean

Post by Cwlee2777 »

Hi,

Can i know how does one buy VIX? Does it go through brokerage firm which can trade US shares? Is that similar to holding an US share?

thank you,
Chin Wei
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Re: What is VIX? A Market Volatility Index, and what it mean

Post by alvin »

VIX cannot be bought directly.

There are a few ways:

1) Futures on VIX
2) Options on VIX
3) ETNs on VIX

Only no 3 can be bought and sold like US stocks through your broker.
The quotes for these ETNs are VXX and VXZ.
They are issued by Barclays.
VXX is short term (3 months to 6 months contracts)
VXZ is medium term (6 mths to 1 year contracts)
The manager will buy futures on VIX and emulate VIX as close as possible.

Of course, convenience comes at a cost.
There is management fee annually.
In addition, the futures may expire and worth less than what the manager paid for.
So it is very hard to follow VIX closely with the cost involved.
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Re: What is VIX? A Market Volatility Index, and what it mean

Post by Dennis Ng »

Credit Suisse VIX Note Decline Highlights Investor Risk
By Christopher Condon - Mar 26, 2012 5:22 PM GMT+0800

The plunge of an exchange-traded note backed by Credit Suisse Group AG highlights the growing risks for investors in some of Wall Street’s most complex exchange-traded products.
Enlarge image Credit Suisse VIX Note Coming Unhinged Highlights Risk

The plunge of an exchange-traded note backed by Credit Suisse Group AG highlights the growing risks for investors in some of Wall Street’s most complex exchange-traded products. Photographer: Gianluca Colla/Bloomberg

The VelocityShares Daily 2x VIX Short-Term ETN (TVIX), which seeks to provide twice the daily return of the VIX volatility index, fell 30 percent on March 23 after Credit Suisse said it would begin issuing new shares. The Zurich-based bank stopped creating shares a month ago, unhinging the fund’s price from the index and leading to a premium over the indicative value that peaked at 89 percent on March 21 before plunging to about 7 percent two days later.

“This is a wake-up call,” Samuel Lee, an analyst with research firm Morningstar Inc. (MORN), said in a telephone interview. “People don’t take seriously the options that issuers have” that can cause ETNs to suddenly stop behaving as they are intended.

Exchange-traded products, or ETPs, have grown into a $1.7 trillion global industry, attracting more than half of all U.S. fund deposits in the five years through Dec. 31, as investors sought an easier way to track indexes with lower fees than active funds. The funds have come under scrutiny over whether they might represent a broader risk to financial markets, and whether investors understand how those funds work that use derivatives to produce returns.

Most ETPs in the U.S. are exchange-traded funds, which track an index by holding the underlying securities. These include the biggest ETF, the $102 billion SPDR S&P 500 ETF Trust, which seeks to replicate the performance of the Standard & Poor’s 500 stock index.
Using Derivatives

ETFs issue shares that trade on an exchange like stocks, and can create new shares or redeem existing ones. Exchange- traded notes, or ETPs, like the one backed by Credit Suisse (CSGN), by contrast, issue unsecured securities that promise to deliver the return of an index. The issuer, often a bank, typically uses derivatives linked to the index to cover their obligation to shareholders. If the issuer cannot repay the notes, investors lose their money. Issuers may also decide to stop creating or redeeming shares, unhinging the ETN from the security or index it was designed to track.

BlackRock Inc. (BLK), the world’s largest ETF provider, has urged regulators to enforce clearer labeling rules and risk disclosure requirements to help investors differentiate between products that are often lumped together under the ETF name.
Fink’s Call

Laurence D. Fink, chairman and chief executive officer of the New York-based firm, in October compared the development of increasingly complex exchange-traded products to the evolution of mortgage-backed securities that ultimately helped cripple financial markets in 2008.

“Examples like this support what we’re trying to do around regulatory reform and the education of investors about exchange- traded products,” Jennifer Grancio, head of U.S. distribution for BlackRock’s iShares unit, said in a telephone interview, referring to the Credit Suisse ETN. (GAZ) “All exchange-traded products are not created equal.”

Investors, who bought the ETN to profit from rising volatility, lost about $340 million when it dropped more than 50 percent over two days. The plunge began even before Credit Suisse announced on the evening of March 22 that it would resume issuing shares.

The initial drop reflected short selling amid speculation new shares would come into the market after the ETN climbed to record premiums, said Chris Hempstead, director of ETF execution service at WallachBeth Capital LLC in New York. Less sophisticated investors who didn’t anticipate the move were left with the losses.


‘No Obligation’

In a short sale, an investor borrows a fund or security, then sells it, betting the price will fall and the security can be repurchased later at a lower price.

When Credit Suisse stopped issuing TVIX shares temporarily in February, it cited “internal limits on the size of the ETN.” The product’s prospectus tells investors the issuer is “under no obligation to issue additional ETNs to increase the supply.”

Jack Grone, a spokesman for Credit Suisse in New York, declined to comment.

Issuers stop adding shares, Morningstar’s Lee said, when they reach a limit on their derivative positions imposed internally or by an exchange or regulator. At that point, the issuer is no longer assured of delivering the targeted return without incurring a loss.

’Fantasy World’

“The industry as a group makes the argument that they are only dealing with sophisticated investors who read prospectuses and understand the risks,” Lee said of ETN providers. “This is sort of a fantasy world.”

ETPs have come under scrutiny over several issues since 2009. The SEC examined whether they contributed to equity-market volatility in 2010 and the 8.6 percent intraday plunge in the Standard & Poor’s 500 stock index on May 6, 2010, known as the “flash crash.” The International Monetary Fund said last year that European ETFs that generate returns through derivatives, so-called “synthetic” ETFs, add a layer of complexity and risk to financial markets.

Max Breier, a senior equity derivatives trader at BMO Capital Markets Corp. in New York, said he believed regulators would re-examine ETNs in the wake of last week’s incident.

“It highlights that it’s kind of a dangerous instrument,” Breier said. “As long as there’s this creation - halt to creation game being played, it becomes an extra factor that you have to look out for when you’re getting involved in this product.”
Gas ETN

John Nester, spokesman for the Securities and Exchange Commission, declined to comment.

In addition to representing an unsecured debt, TVIX presented complexities because it tracked an index that many investors may not understand. It also added leverage to amplify the moves of the underlying index.
The Financial Industry Regulatory Authority warned in June 2009 that such products might not be a good fit for long-term investors.

“I don’t want to say we need to have strict regulations, saying that only qualified or sophisticated investors like hedge funds can get into them, but there’s got to be something,” Colby Wright, assistant professor of finance at Central Michigan University, said in a telephone interview. “Retail investors are going to get their clocks cleaned if we keep letting them do this stuff.”

TVIX is not unique in having suspended share creations. Barclays Plc (BARC)’s iPath Dow Jones-UBS Natural Gas Total Return Sub- Index ETN stopped issuing new shares in 2009. It currently trades at a premium of 86 percent, highest among 208 U.S. ETNs, according to data compiled by Bloomberg.

BlackRock, as part of a distribution agreement with Barclays, is paid to help sell the ETN. Grancio said the firm only promotes the product to institutional investors.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net
Cheers!

Dennis Ng - When You Master Your Finances, You Master Your Destiny

Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
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Re: What is VIX? How Market Volatility Index affects Markets

Post by Dennis Ng »

just sharing a view, not necessarily mean I really agree with the comments expressed:

http://www.forexpros.com/analysis/weeke ... out-122325
Cheers!

Dennis Ng - When You Master Your Finances, You Master Your Destiny

Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
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Re: What is VIX? How Market Volatility Index affects Markets

Post by candy_chia »

【恐慌退潮…9大股市升温】

虽然美国没推第3轮量化宽松政策(QE3)、欧债问题未解,但主要国家经济数据表现不坏,投资人信心略微回温,帮助恐慌指数(VIX)从6月初以来下修逾四成,期间多个主要股市分别弹升一成上下,且VIX指数目前为3月以来低点,股市投资热度可望再起。

统计美国去年遭信评机构降评以来,VIX指数迄今共出现3次较大幅度回档,平均修正幅度约四成,代表投资人恐慌气氛消退。在这3次修正期间,共有9大股市平均涨幅逾一成,其中以美股、拉丁美洲市场占大宗。包括费城半导体指数平均涨逾15%,NASDAQ与S&P 500指数也端出强弹表现,另外,拉丁美洲由於占了地缘之便,巴西、阿根廷、墨西哥股市在VX指数回落期间反弹表现也不差。

For translation to English:
https://www.facebook.com/photo.php?fbid ... =1&theater

http://bigcharts.marketwatch.com/quickc ... type=Index
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Re: What is VIX? How Market Volatility Index affects Markets

Post by candy_chia »

Low VIX (Volatility Index occurs Only when investors Perceive NEITHER Significant Downside risk nor significant Upside potential.
http://en.wikipedia.org/wiki/VIX


VIX Low...News Quiet... Stock Market Lateral....Fed Still protecting....
Aug 11, 2012 - 06:49 AM, By: Jack_Steiman

Stock-Markets

I have a good time listening to debates. It's always fun to hear the emotion pour out of people as they express their opinions on the stock market. I guess the prevailing view is, it's only a matter of time before this market is doomed to crash out. I wonder about that. Fundamentally I have no argument with that logic. After all, Europe stinks. Our economy is not as bad, but it stinks as well. Debt and foreclosures are everywhere. More and more folks are losing jobs. Our manufacturing sector is in contraction and pointing to recession.

Yes, that's enough for me to agree with them all. There's one tiny problem. They are not taking into consideration the power Mr. Bernanke has over the entire stock market. The responses from these people are, it doesn't and shouldn't matter. Problem is, it does matter. As long as the Fed is out threatening to protect the markets, it doesn't matter if he does. He continues to pump money throughout the system, and as long as he holds interest rates near zero, I think these folks aren't seeing the bigger picture here. The Fed is more powerful than debt. He's more powerful than the threat of the Eurozone going under.

He's more powerful than your emotions. His job is to keep Wall Street alive so Main Street remains alive, and he'll do just about anything under the sun to make that a reality. He doesn't want more people unemployed. He doesn't want more people on welfare and food stamps. He doesn't want more people to be forced in to foreclosure. He wants peace and success, and the only way to do that is to, basically, force folks to stay the course on Wall Street through his actions. It's working. There is no good reason for this market to be holding up, but it is.

Can something come along and ruin his party? Yes. If Europe completely goes down from a financial crisis not yet here, down we all go together, Fed action or not. He'll still try, but it won't work. However, in this moment, that's not taking place, so don't fight what is in place. The Fed is doing his best to keep the system liquid, and force the average person to stay the course with stocks. The interest-rate plan alone is doing enough to keep that going. Bottom line is, don't fight the Fed. Market is holding just fine for now.


When studying the markets we try to find clues about what may be coming down the road. The best place to look is in the area where all of this mess first began, the financial stocks. They had a very long run to the down side, and got hit the hardest when the market was in bear mode. No one wanted to go near them. I'm being kind to say it that way. They held the biggest risk as financial disaster was upon us all. When studying the longer-term charts on those financials now, you can see that there's nothing bearish technically. They aren't perfect by any means, but through all the nonsense going on overseas, it's good to see how well they're holding up. They hold the biggest risk if things fall apart there, yet, they are acting well enough to tell us nothing imminent is upon us that will destroy the market.

Those may be the famous last words, possibly, but I can only go on what the technicals are telling me. Anyone who takes the time to study these stocks can see that they are more bullish in their set-ups. Not wonderfully so, but more bullish than bearish. Only when those financial stocks throw in the red flag technically, will I start to get more bearish from a technical perspective. Does the market see a positive resolution down the road? I can't say yes with certainty, but you have to wonder what in the world is holding these stocks up so nicely. Never fight what you see is my mantra. If they turn south technically, I will adapt to it, but for now, the financial stocks aren't bad at all.

The market tested great support at the 200-day exponential moving averages four separate times a few weeks back, but the bears could not take that key support level out with any force. A few breaches below along the way, but never anything powerful in terms of price or volume, which is necessary as a confirmation when you're taking out such strong support. After four failures, the bulls took back control of things and started the journey back up. Now the bulls are closing in on taking out massive resistance at the gap down top or 3025 on the Nasdaq 100. If the bulls can fight hard enough for long enough they can get the job done, although it only matters if they do it with volume.

For now, you can play some long exposure, but don't overdo it. Things are more favorable now, but you don't want to front run the move in case it never happens. Ask the bears about those four failures at the 200's, when it seemed like a slam dunk it would go away. Nice and easy as we weave our way through this mess.

Peace,
Jack

Jack Steiman is author of SwingTradeOnline.com ( http://www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.
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Re: What is VIX? How Market Volatility Index affects Markets

Post by candy_chia »

A Low VIX Doesn’t Necessarily Mean A Market Selloff, Long-Term Analysis Shows
Misreading the VIX

History Shows a Low VIX is Not Necessarily a Contrarian Sell Signal

Recently many people have been talking about how often investors have entered the market when the CBOE Volatility Index (VIX) (VXX) was below 16, only to lose money by buying at the market tops. The assumption that a VIX below 16 is highly correlated to a market top is not always accurate. To fully grasp this concept, one must first understand how the VIX is calculated and how human emotions can affect the VIX.

The VIX is just a volatility measure, nothing more, nothing less. Humans act on greed and fear in the market place and VIX reacts to the actions taken by these two strong emotions.

When the market is rising, we want to capture every possible.

People fail to buy protection or insurance in bull markets.

As this is occurring, the VIX will remain at depressed levels due to the way it is calculated. As soon as conditions start to change and the market pulls back, everyone runs out to buy protection causing the VIX to rise. When huge amount of S&P 500 (SPX) (SPY) puts are being bought as investors rush to protect their profits, the VIX will spike.

In conclusion, although the VIX is a great instrument to use as an indicator, one must not act on this time series alone. A prudent investor/ trader should utilize other indicators for confirmation in order to make a more informed decision.

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Re: What is VIX? How Market Volatility Index affects Markets

Post by candy_chia »

The VIX Surges 25%: What Does It Mean For Stock ETFs?
August 29, 2012

On Friday, August 17, the CBOE S&P 500 Volatility Index (VIX) hit a 3-year low. Apparently, options investors had not been feeling a need to purchase ”puts” to protect against a devastating decline in U.S. stock prices.

However, since logging a 3-year low, the VIX has jumped roughly 25% (8/17/12-8/29/12). In the same time frame, the U.S. market has moved sideways (-0.4%).

The VIX essentially measures the level of ”put” activity over a period of 30 days. With that knowledge, one can surmise that options investors FEAR that the FED WON'T SIGNAL QE3. At the very least, there are those who worry that the Stock Market Won’t React Favorably to whatever Fed Chairman Bernanke says this Friday in Jackson Hole.

Equally worthy of note, the VIX is testing its short-term 50-day moving average. Technically speaking, a sustained breakout above this level could precede a pullback in the SPDR S&P 500 (SPY).

http://seekingalpha.com/article/836581- ... aily&ifp=0
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Re: What is VIX? How Market Volatility Index affects Markets

Post by candy_chia »

Phillip Securities Research Pte Ltd, 9 January 2012
By Ng Weiwen, Macro Analyst

the VIX ('fear index') tumbling to a 5½-year low, are markets too complacent in view of the lingering risks on the US and EU fiscal front?

Well, tail risks -or rather the perception of tail risks- have receded.We think that the investment outlook has improved but challenges remain.

Sychnronised G4 monetary easing, apart from provoking a race to the bottom among major currencies, will provide downside support for risk-assets (such as equities) - which although having responded well to the cyclical upturn (as reflected by the uptick in JPM Global PMI), still face challenges from unresolved fiscal issues on the G2 front (US and EU).


Related article:

VIX Hits Lowest Level Since June 2007
January 9, 2013

The VIX "fear index" has plummeted since the Fiscal Cliff issue was "resolved," and this morning it hit its lowest level since June 20, 2007. While the VIX is certainly low here, it's not unprecedented.

As shown below, for three years from 1992 through 1995, the VIX traded in a range right around its current level. The same occurred during the mid-2000s bull market in 2005 and 2006. If there's a line in the sand for the VIX, it looks to be right around 10. While the VIX has dipped below 10 briefly in the past, it hasn't stayed there for long.

http://seekingalpha.com/article/1102881 ... view&ifp=0
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Re: What is VIX? How Market Volatility Index affects Markets

Post by candy_chia »

Fear index jumps 35% on U.S. stock selloff
Feb. 25, 2013, 4:19 p.m. EST

By Wallace Witkowski

SAN FRANCISCO (MarketWatch) -- The CBOE Volatility Index VIX +34.02% jumped Monday as U.S. stocks sold off broadly and concerns rose about political stability in Europe.

The so-called "fear index" rose 35% to 19.18 as stocks closed, its largest one-day percentage jump since August 2011.

U.S. stocks had their worst day of 2013 with the Dow Jones Industrial Average DJIA -1.55% , S&P 500 Index SPX -1.83% and the Nasdaq Composite Index COMP -1.44% all down nearly 2%.
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Re: What is VIX? How Market Volatility Index affects Markets

Post by ein55 »

If we use TA to analyze VIX, 50 day MA is below 200 day MA, implying the longer term trend of fear factor is still down. After several years of "crisis" training, world investors are less fearful to news (when reacting to call "wolf is coming"), but some will still take profits from time to time in this gradual-growth market.
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