Volatility Index Graphs February 12, 2010

VIX broke through last week's highs, but the subsequent market rally saw VIX retreat.

The index itself has become more volatile in recent weeks.


Vix_feb12

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Below is RVX, the volatility index for RUT, the CBOE Russell 2000 Index.

RVX_100212

612

2 Responses to Volatility Index Graphs February 12, 2010

  1. Larry 02/13/2010 at 4:10 PM #

    Mark, I searched through the blog but didn’t find anything on a question I have as options expiration draws close. (This coming Friday)With such a short time remaining, i.e. 4 trading days; what is the motivation of buyers of call options. Assuming the price of the underlying stock remains static it seems odd to me that the premium stays at the same level. I suppose the motivation is the same irrespective of the time frame but a short reply would be appreciated.
    Thanks
    Larry

  2. Mark Wolfinger 02/13/2010 at 6:51 PM #

    Hi Larry,
    There is not quite enough detail in the question, but I assume you are referring to options that are reasonably far OTM. Those are the ones that don’t decrease in price very rapidly – or sometimes they hold steady.
    Motive? When I’m short those options, I’m willing to pay more than they appear to be worth – just to eliminate risk. I am not alone. OTM call spreads are difficult to cover when the price reaches 10 cents. Obviously it depends how far OTM and on how much time remains. But at a certain level of ‘cheatpness’ there are going to be shorts, covering their positions.
    I don’t believe there are many bidders ‘taking a shot,’ but there are some. That adds to the bid and makes it more difficult for the bid to disappear and the price to decline.
    The same with single options. There are more people willing to give up the last nickel to close a short position and lock in the profit – than there are market makers willing to take on that risk for a mere nickel.
    If you are referring to ATM options, I have not observed what you have. They decay. Spreads decay far more slowly.