Re: Its another arrow in your quiver!
Scott Raynovich
4/12/2011 11:21:39 PM
Re: Its another arrow in your quiver!
Will H
4/12/2011 9:20:10 PM
Scott,
QE2 definitely added liquidity to the market. Helicopter Ben's attempt was to drive up equity prices in an effort to increase the wealth effect so people would feel better and spend more.
The VIX is just what the futures/option traders on Wall Street are thinking.
I think you are correct that we are in a period of low volatility.
William,
I'm wondering if you think the VIX has become a distorted market mechanism because of all the liquidity that has been added to this system. It seems to me the new norm is long periods of low volatility (low VIX), punctuated by short intense VIX spikes, such was what we saw with the recent Japan disaster.
Maybe in the Fed's pursuit to try to "control markets," they have created the illusion of stability and the byproduct is that the high-risk periods can become extreme.
--Scott
Its another arrow in your quiver!
Will H
4/8/2011 5:21:22 PM
The VIX isn't "the secret". It's another arrow in your trading quiver. Prior to the creation of the VIX, investors had no way to gauge volatility. Now there's some help. When you start to use some other "dashboard tools", you can get a better feel for the market. Obviously, the market can change in a second. But, using tools that "may" increase your probability will help you sleep better at night. Use the VIX, and couple it with other indicators such as NYSE Short interest ratio or Bears vs. Bulls ratio, and you may have good indicators of volatility, optimism and pessimism in the market.
The dilemma with the math models is they are self defeating once exposed.
If the model is not good enough, investor does need to waste time on it.
If the model is really good, more people will apply it in their trading. Any edge of the model will disappear quickly.
A perfect example is the Long Term Capital Management. At the beginning, LTCM has the best model for trading bonds. It has couple of years of excellent return. then LCTM run into troubles because its bond model was copied by many Wall Street firms. To boost their return, LTCM returned big chunk of money to its original investors and took a deep dive into unfamiliar trading fields.
The decreased liquidity and involving in unfamilar trade finally caused LTCM's failure.
That is the reason why most hedge funds guards their trading strategy and model vigorously.
Any model which are public available won't have an edge in the long run. And regular investor shall stay away from it.
Re: The VIX does'nt predict future volatility...
TelecomFreq
4/8/2011 1:13:49 PM
Ashish,
does VIX have the flexability to adapt to regulation changes for tradeing? i am just trying to get a better understanding of the logic that drives the system.
The VIX does'nt predict future volatility...
back2basicz
4/8/2011 1:09:51 PM
William.
The VIX does'nt predict future Volatility.It just gives an idea of current market conditions as they stand now.If it did do that,all Analysts& Stock Pundits would be out of their jobs!!!
Notice how following announcement of a major Geo-political (or otherwise event),VIX tends to spike and spike dramatically.If it could have been a future market predictor/Oracle it would have spiked before the event actually took place.
However, there is No disputing the fact that VIX is actually a pretty good measure of current trends in the market.And betting on it can be quite lucrative.
Regards
Ashish.
Wow...if VIX is really the awesome predictor that it is advertised as being, this could revolutionize the market! I think having a formula to rely on beats old fashinoned "intuition" any day!
If VIX is the model that everyone turns to, to measure the volatility of the market, will market intevention spawn the development of a new model?
So what does this mean for the market now? Also, I'm curious as to what you think the government market intervention (QE2) has done to the VIX.
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