Volatility Index On The S&P 500 Shows Investors Feel Little Fear About The Equity Markets

Thursday, August 09, 2012 07:06
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Volatility Index On The S&P 500 Shows Investors Feel Little Fear About The Equity Markets

Tags: investing | markets | S&P

The gauge of investor fear, otherwise known as the volatility index, reached its highest levels since the 2008 financial crisis approximately one year ago. Now, fear has evidently subsided as reflected by the Chicago Board Options Exchange’s Volatility Index (VIX) hovering below its long-term average and more than 65% below the 2011 high.

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The VIX hit a high one year ago of 48 after the downgrade of US debt by S&P and Greece’s teeter on the brink of disaster. During that period, the S&P 500 fell almost 17% in just over 10 days.
 
One year after the VIX reached a high of 80.86 on November 20, 2008, the S&P was up 45%. A reading of 45.79 in May of 2010 spurred a market gain of 25% by May of 2011.
 
The VIX is an indicator of the prices investors pay for protective options contracts on the S&P 500. A reading of 30 indicates fear, 40 indicates panic, and 20 or below indicates that investors are not worried about the market.
 
Some technical analysts use the VIX as a contrary indicator. If that holds, it’s reasonable to think that the market may not go anywhere for a bit while the VIX consolidates around a predicted floor of 15.

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