VIX Fear Index

VIX Fear Index

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The so called VIX fear index is in the news
as the volume of put contracts on the
Chicago Board Options Exchange (CBOE)
Volatility Index rose to a level of three puts
on each call contract.


The CBOE Volatility Index itself is a
measure of market expectation of coming
price movement of the S&P 500 over the
coming 30 days.


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It uses a weighted measure of the prices of
puts and calls in the S&P index as its
base.


The costs of buying puts and buying calls go
up with expectation of market volatility and
down when traders expect a more tranquil
market.


When the VIX fear index is high it is
indicative of a volatile market.


However, an extremely high VIX has often
been seen before a market rally extending
over a year.


Thus the VIX fear factor is not always a fear
factor and can be an indicator of better
times for the stock market.


Since 2006 it has been possible to trade
options on the VIX itself.


Options traders expecting to see the VIX fall
are the ones buying puts on the so called
fear index itself.


Traders can trade the VIX directly but stock
traders more commonly use the VIX fear
index as a guide in helping predict market
trends or a market correction.


Traders using Candlestick analysis for
technical analysis of stocks can use the so
called VIX fear index as an adjunct to
understanding and predicting changes in
market sentiment.


When the VIX fear index peaked recently,
traders, expecting a fall from historic
highs, bought puts on the index.


Those trading the VIX fear index directly can
use both fundamental and technical
analysis.


hose who simply use the so called VIX fear
index as a guide will use the expectation
of a decline in stock volatility into their
calculations for future stock trading.


The extreme stock price volatility and index
volatility that the market has displayed
recently seem to stem largely from
concern about the potential economic
effects of the European Union not solving
its sovereign debt dilemma.


Recent pronouncements by German and
French leaders seem to have calmed the
markets a little to which some credit to the
likelihood of decreased market volatility.


Considering how uncertain this situation still
is traders will be well advised to keep up
their Candlestick charts in order to
accurately tap into market sentiment.


As fundamentals are quickly discounted by
the market traders use Japanese
Candlestick charting to anticipate
approaching price changes and buy
stocks or sell stocks accordingly.


Remember when using the VIX as a guide
that the so called VIX fear index does not
differentiate between a high volume of
puts on the S&P 500 index which indicates
a potentially falling market and a high
volume of calls which indicates a
potentially rising market.


Also remember that calls and puts on the
VIX index itself have to do with
expectations of higher or lower volatility,
not a higher or lower stock market.


No matter what the so called VIX fear factor
seems to tell us, traders using Candlestick
pattern formations as a guide know that
market sentiment can always change and
that with Candlestick signals as a guide
they can profit in both up and down
markets.


VIX Fear Index

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