Low VIX, or volatility, is not a sign in itself of immediate bear markets. Let's look at the last 10+ years of VIX data to find patterns that would suggest trouble ahead.
What we see instead is that the last two periods of extended LOW VOLATILITY READINGS were during choppy to rising periods of the stock market.
No market runs on just one indicator and VIX is just one tool amongst many.
What I see is going on is that people are selling call options to generate income and to cut back a little bit of risk. This is a sign that people are nervous, not bullish. When people are extremely bullish, they "buy calls" and they "sell puts". But they are selling calls and buying puts, which is the opposite of bearish.
Tim
9:30AM EST January 30, 2017
Bình luận
⋅
I hope everyone can see how incorrect their logic and assumptions were now that there is perfectly clear HINDSIGHT to review.
Tim.
Nov 9, 2018. 12:03AM EST
Bình luận
Wave-Trader
⋅
Amazing work Tim
IvanLabrie
⋅
Great chart Tim, people need to educate themselves and do their own homework on these things instead of accepting what the media and different pundits say as fact.
Cheers.
timwest
⋅
@IvanLabrie, So true. People love to hear "fake news" these days... and this is one of them. You can look back in the past and see the SPIKES IN VIX that show you that VIX is high when there are market crashes and then naturally your eye goes towards the times when VIX was low to then "see" that low VIX happens at market tops... but that's all it is... an optical illusion. VIX is complicated and almost everyone understands what it is but it is another thing to actually trade it or use it to forecast. That's where my 30 years of watching VIX helped me figure it out (well over a decade ago!).
A-shot
⋅
"But they are selling calls and buying puts, which is the opposite of bearish ." would they do the same in a period of uncertainty? As far as i recall, sideways markets are worst for call.puts as people might get stopped out on both trying to guess. I do agree, the higher we go, the more nerves it starts to trigger - but wouldn't that be a predecessor to top guessing?
timwest
⋅
@2use, We can only make a best guess. There is no certainty, yet people are so one-sided on tv and in the media that "Low VIX is BEARISH because people are complacent and people are 'buying calls'". But that isn't true. Complacency is when people do nothing. But people are actively selling calls which is what drives down the price. That isn't what is reported. Last week ZeroHedge reported that the price SKEW on options was showing that people were buying puts and profit from the next big decline. But that wasn't true either. I heard an analyst from BoAmerica that had a great comment this morning: That there is so much cash on the sidelines and people are hoping for a correction so they can put their cash back to work in the market. That isn't what makes a market top. These are challenging times and we can only do our best to follow what people are doing with their money to get an idea of when the market is likely to do. VIX is a great way to "follow the money" but it's important to understand what VIX is telling us. If VIX is low, people are "selling options". If VIX is high or rising, people are "BUYING OPTIONS". If the SKEW is HIGH, it means PUTS ARE EXPENSIVE relative to calls. Put together the various signal combinations and see that each tells a different story.
A-shot
⋅
@timwest, hence so much on the sidelines in this uncertainty. Markets climb a wall of worry. And right now, its more average "worry" (opposite to one time worries and black swans) than usual. I wonder if 2017 will indeed be a sideways year, shaking people out along the way. or will the situation force those who need to make money out of this take riskier bets and add more hope? Indeed, it is only a best guess scenario..until further notice or a confirmed direction.
Personally ive been watching TVIX go down day by day, and felt that this is a good sign for lack of fear. Hence i got in Tesla at 200 and it is 250 now