The Volatility of the Volatility

[wayneL]

IOW the statistical volatility of VIX (implied volatility).

Lagging or leading indicator? Or some other significance?

 

[Trend Hunter]

Hi Wayne,
Great question. The VIX is one my favorite indicators for reading market sentiment.

I believe it is a leading indicator in some ways. For example about 2 weeks ago the chart below showed me that the Market Trend was changing from Bullish to Bearish. All several days before last Thursdays crazy day.

Though I didn't know the Market was going to react as it did last week, it told me 2 things:

1. Not to be long in the market
2. Be ready for bearish opportunity, also with the market being long over due for a correction.

In the 60 min VIX chart below you can see the down trend violated, then broke through multiple resistance and bounced higher off support, on the way higher. Which in my book, if the VIX is trending higher usually is bearish for the market.

General the VIX can also tell me:

• Sentiment Extremes
• Complacency in the Market
• Periods of Volatile Price action.
• Ideal times for Trade entry

I'd interested to hear what other think of this Indicator also.

 

[noirua]

Volatility of the volatility, is covered in Bob Beckman's book on 'Power timing' (cost about $100 in todays prices, fortunately Bob sent me a copy free. Maybe he had loads left). One of the more boring books on investment, except for those who love the variations of the variations of paint drying: http://www.ingber.com/markets99_vol.pdf

 

[wayneL]

What did he have to say about it?

 

[weird]

What did he have to say about it?

Sounds like a bit of a panic Wayne, calm ..eee, calm ... eee , calm ... eee.

 

[springhill]

Do they make volatility indicators for women?
Would only work if it leads, of course.
When it lags, you've already been hit over the head with a frying pan.

 

[noirua]

What did he have to say about it?

Firstly, this is an obituary for Bob Beckman: http://www.turbulenceahead.com/2007/09/dont-ask-experts.html

Bob Beckman's life in a blog: http://forums.moneysavingexpert.com/showthread.php?t=827981

 

[noirua]

Hi wayneL, Bob Beckman spoke of volatility all the time and much of what he said and sometimes wrote about was variations etc of volatility. No doubt many passed this thread over as too boring when in fact some see it as a way of investing or at least an approach to it.
Bob spoke of Sheldon Natenburg's option volatility; pricing volatility and its pricing concepts; sufficiency of volatility and the lack of it; asset price volatility its bubbles and process switching; volatility and low interest rates; Elliott wave explanations covering hedging and volatility; personal judgement of volatility; low and high uncertainties in near and long term volatility; and being able personally to stand volatility in its volatility and in that to make your own judgements [taking our own advice in violently volatile times brings me (Bob Beckman), to refer to my own errors in failing to follow my own advice].

An excellent thread that needs more of those with above average grey matter to join - Good luck noi

 

[wayneL]

Thanks Noi,

VoV is still up there.

Anyone got the balls to short VIX option calls?

Bear spreads to limit the risk.

 

[leedskalnin]

An excellent thread that needs more of those with above average grey matter to join - Good luck noi

don't know about being above average but I do have grey hair.
The vix seems to be hitting my targets quite good , have had the odd one that doesn't.
A friend of mine who trades hundreds of millions each week in foreign currency swears by it. Friday on the Dow looked as if it was heading on up to my next target of 34.96 , but came back down. Could possibly see it tomorrow , I haven't seen my bollingers get this tight since pre GFC days so we will see, certainly more room there for the Dow to come down.

 

[cutz]

Anyone got the balls to short VIX option calls?

Gut feel tells me I should be shorting volatility.

As for using the volatility options, (I’ve been loosely watching it's euro equiv. ) in my case some aspects of pricing is still shrouded in mystery.

I haven’t come across much literature yet that focuses on this subject.

 

[Grinder]

Mine tend to shrivel up in this type of environment. If I was going to short vol would be looking to buy up on otms to offset any colateral damage.

 

[mazzatelli]

As for using the volatility options, (I’ve been loosely watching it's euro equiv. ) in my case some aspects of pricing is still shrouded in mystery.

I haven’t come across much literature yet that focuses on this subject.

Dry read - stay away from the var swaption material

 

[cutz]

Thanks for the info mazza,

Also led me to a section on the DBG site with a packet of useful info.

 

[craigj]

theory i have

when markets are quiet and the volatilty is low

then shouldn't you put half your funds into the vix index and wait for a storm to brew and double or triple your cash ?

the vix can always trade lower but will always trade higher at some stage and can never go to zero ?