VIX Graph Jan 8, 2010

VIX just keeps moving lower as the market grinds higher.

VIX_100108 

573

4 Responses to VIX Graph Jan 8, 2010

  1. Deb 01/09/2010 at 9:48 AM #

    “VIX just keeps moving lower as the market grinds higher.” Mark, what can be inferred from this? Thx, Deb

  2. soemardi 01/09/2010 at 10:47 AM #

    if the vix is low
    is it the good time for iron condor?
    cause we have only cheap option and when the vix is up
    the option will be expensive..?
    is it right?
    so what should be the best time for iron condor?
    thanx…
    soem

  3. Mark Wolfinger 01/09/2010 at 12:59 PM #

    Deb,
    Not too much.
    Rising markets usually bring about a decrease in implied volatility. A good question is: ‘why’?
    Complacency.
    Rising option premium occurs when many people want to buy options. Far more buyers do so for protection and fear of gigantic losses. Volume increases when puts are sought – and that happens as prices fall and more and more people become afraid of a debacle.
    Although the bulls can be just as bullish as the bears are bearish – buying panic just doesn’t reach the same levels as selling panic. Thus, rising markets always finds some people willing to sell options. Sometimes it’s a willingness to take some profits. Sometimes it represents nothing but that complacency and thoughts such as: ‘How can I lose by selling puts’?
    There is no other possible result – than falling option prices – when that happens.

  4. Mark Wolfinger 01/09/2010 at 1:04 PM #

    When VIX is high you get higher prices when you you trade iron condors. From that point of view, higher VIX is better.
    When VIX is higher, the markets are more volatile. From that perspective, it’s more risky to own iron condor positions. One way to compensate iron condor traders is to pay higher premiums.
    Thus, it’s a trade-off. High premium is great. But low market volatility is even better.
    To answer your question: Is this a good time for IC, the answer is: It depends on the future and just how volatile the market is going to be between today and the time your positions expire. In other words: I don’t know.
    Best time: When IV is extremely high and about to fall. No one knows when that will be, in advance.
    If you want a portfolio that has less risk if VIX changes, then you want to have very few negative (or positive) vega in your portfolio. To do that, you can add some calendar spreads, or double diagonals, to your iron condor positions.