![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_ITwGSnUrhJPpkjlg-M5uFA8psbZXyexVap5sCqd4QyfHeyLNCyN51Bd5uuT953UVOUtr_0KoW5mJKGwtnHGUdIWeS2FcBhtaSo1xCuW3jTFCuRu4tVwwotL3Ipfemy_KQkn7ydIU0io/s400/vix_summary.gif)
There has been some talk recently about the VIX options skew and how it indicates a possible severe market downturn. The rationale is how the skew looks today relative to early September 2009 (before that market collapse). The Skew for today (2-12-2010) and 9-9-08 are included - click either image to enlarge. Note the level of the VIX highlighted in yellow and the dates on the charts.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvPNviCQ7XJJgMZFSOsZEafLz2SpVovsRJS85kvmXM2IDtAnORK_zcSQ4EMP1iZEuXzyEKZY96aGcIN_QFLkJzGfW1MaoSLP40QqCUoG_Pbnjv8J5S8ttm7PwMvqHODDfQnVyoSvu-BkQ/s400/vix_skew9908.gif)
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKenVRu5SHnvRlofpII9lzmWXsfhgjGdtZikVrwVUiCLTglL4hyszZk2yE5VBAFYM5EYTMJFMD5DlsavVNE7wrpcpZCDL7LeRTV3SDscnMqPAyB1FavSCj867cxrityJCyG4NdISZHUDM/s400/vix_skew21210.gif)
The Charts Tab snapshot of the VIX (2 years) is included (click to enlarge). Not that we needed a reminder, but the VIX exploded above 80 after that 9-9-08 skew.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEja_XzXQHcmAVPFLZ2u0u5-YNWy0QnGsxyU0Kfnk0mt6IXqLJIDPx-cFUMhOC2Z8KKW0CtiqcYI_gKdOTK_0lZOvRS2JMiofO2Fmkt8iKdzJgyclDv81wmxbj6PO_Wwgc6Q5oqfo8_vLSs/s400/vix_charts.gif)
So the talk recently (from some) has been that the similar skew today represents a risk of similar explosion in the VIX (an implosion in the market). Fair enough. But how about a different angle?
I have included the Skew chart of the VIX from 7-7-2009 (click to enlarge). Note the similar (granted, not identical) shape to 9-9-2008.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEii5knAJEPzbAppgb_Rd06rnyJl3WX4e6dDXq7Mn0KYpDAEUYeHhQvaW6h6YA_C1hNoPAHUZLDOQDfAT-p-s782dF1FnKAmgmayUNug5M5OOFVJw6uh8C89x71jkP_D9ggzm1k5kevcY5Y/s400/vix_skew7109.gif)
The Charts Tab snapshot for that time shows of course that the VIX traded in a tight horizontal range after that skew - certainly no explosion. The chart is included (click to enlarge).
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjYACnWyXbjGogLjxEr049oJau1z8CtYs8epI3QVKaH19RmbMeLdHS8mufHiGZFs9TzO8_GyGGxtxtWn9tcfB_V18ASIKnIeEwSgwgu-oaN9W4yynJf6H0pMvKB2BRwmzEAQIkpM3Rg5UQ/s400/vix_charts2.gif)
So, a skew as we see today isn't necessarily a guarantee of the future (good or bad). For completeness I have provided the skew charts from 10-27-09 (right at the height of insanity) and from 3-5-2009 (the market bottom). Note how much flatter the front month is relative to the prior snapshots.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcf87d8kA53_BeoOKQj1E6DJGAragjJdrJjCLbmaF7GVBe2O-FwSPAb8Siyt0fI-C0gjd4Uz8enhT_HhqjzUT_wO2VxdoG5-r-TsJ3Euh9mo7y-yziXIt7gzgLgA0An_HJcIn-BVzI6Hk/s400/vix_skew102709.gif)
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7HDYdfl7zw5Gd2hR_axLZJsoLg5oeA4a8X6eKGye2DG6UYgTisHEJkD8Fh4tZ8PQTYzUUN8cEB-MErRYOnGwrdDZeXZDKS3e59w_tTrd96YiGy3hbyfn73rUrUVhou-8beT9qb2tLZQs/s400/VIX_skew3509.gif)
Conclusion? The market is pricing in risk of a downturn - but that's no guarantee it will happen.
Per reader requests I have added the Vol chart with IV30™ (red) and HV20™ (blue) (the bottom section of the chart is vol). The yellow below that tracks the spread between the two. I chose HV20™ b/c it is measured in trading days, where IV is measured in calendar days (weird options market convention since forever) so IV30™ is ~ 22 trading days and tracks closer with HV20™ than HV30™. Click to enlarge.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLkhKhUHqWjC7Ygnx8n4AteBmDKPIMpu0X314IsTtIKbZQJJxkvhvMCxuJcl6Tbi98T6pceHssayzVbXfIxp5DDQ9XZoHKroqUPLHhxveF9f2mpJHEu_KUC-rEv7tPHZnklfFtZfBTwR4/s400/vix_chart_vol.gif)
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