![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8V_rS03Hii0tJxoO5jpBgcmdqHYahyvR5L7alv1gADvL5hxYOPjPxda3ir4s2f9DOnndvF5b9bxui-8PcdTfrrxSHXMTkJBhx8hhs1C0nD-NQ3RW22jtPKoqqTUD6eZF73qG49cAh1GM/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/AVvXsEjh8tzsTWs-JaZcoOyeN0sfnnzNH_D_B5Wvn7hdYkqebmKauOF9vWdB2XyP8we8Pk6_REtJenMTrUfzc6luUNUNDj1xjV7j6nc8asXmOXdB3qJDGfju1axTFmxPR-fWmGUd4zdL2wWozhU/s400/vix_skew9908.gif)
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgI-d93Fp4IB8SSfVTtkpb2PRywmsSB3_pJgo6jGoNHNWjhjc_iblFdVGblR1y8wW1an1lRxufoGacaOv2nn1Oyyu_v0TXGxaeD8n0lpbyuLcv40xAo2f0jL4ckZW6SzM5YkLiqg26R4S8/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/AVvXsEiJR8DUvKCTJTELfzk0gPKgDS2I7NGYstg2hCDgAAcTCFnZ4tl146TTOR_XnLOKqn8NaqmYooxx1LrWcjWIufoAhQFD6VGzjwo6ksSv7MuhUF06-4nIAErlEzFwcrgs0Q0PUyGBBN7xZns/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/AVvXsEh-KiGGa9WI_kS-snHOIQniIxI-Y03ufknIrPtYzrR_yUvEoWf9C1lFzKmnGDiJSUlZwFICdXgc1UwAv6Uv08EFb-XHSoxTZRrmxIlUwc3mD_IcWGD_4itkeuiya2QJOH5wHYHcKZoiic4/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/AVvXsEjGaSDXYyi29sfjxLug2OAQOAQXihG7kJf1A1EdiUfsvk_Ms6p7QotQ9H-l6HCaxgCt8I_nhMybks4puIaMr0xWjy_noo0-HiuqvQ5YkHU251YF8s6ZhyphenhyphenNLnLwlO5FqAKP_L2taXyK_-XA/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/AVvXsEiJJ3bBowxxQr-MCDEeSz81IX1qKZzAEY1DMs_DtdZ1LEiZofnSSWwEGkCLFAOAi-syB-iJyzmeS6QwYDzc9BvBDgHzPDAqDmLOpKJu4OZUu_a_QYY949urXsE4RFSymWMcLcgIQ3WUuNQ/s400/vix_skew102709.gif)
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBxTu2mKvm6xNEWwY5-s-wAbZae5iITF63aLf5OdEoGtnKCfWdQu66RgaxeI9HahEuTtPNOJnY48seS9lxki_mZH495UB_SjFVKwc8tkHLasY1aZilaGn5TBlkpdhO_WY1SMf6QLs1Bfg/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/AVvXsEhqtox3b3eXOsn3MoMsAU8hch8z1SVGk5C4oZfspdnp2LIi1eODdVbLB0IX1vfqmUTUR2bkHJuFybwkUwazh7mw7MdOW4S_7hbv0KsxIkqPnSAl_6xUW8tdIViD4BFkT0HalWNcb8yDGak/s400/vix_chart_vol.gif)
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