A Good Article on Changes in VIX Performance???

http://biz.yahoo.com...00779fd2ac.html

Edited by redfoliage2, 04 March 2009 - 02:46 PM.

Subdued Vix signals investor battle fatigue
Wednesday March 4, 1:20 pm ET
By Anuj Gangahar and Michael Mackenzie in New York

Wall Street's widely followed "gauge of fear", the Vix or volatility index, is no longer the barometer for investors that distinguished in 2008.

When the S&P 500 fell sharply in October and November, the Chicago Board Options Exchange's Vix, which measures the implied volatility of options based on the broad US equity market benchmark, surged to record highs.

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This week, the Vix has been relatively subdued even as the S&P on Tuesday fell below 700, a level not seen since 1996, following another series of sharp sell-offs.

The breakdown in the relationship between the S&P and the Vix, which have historically moved in inverse proportion to each other, is a product of a number of factors and could suggest that stocks may have seen the worst of the current bear market, say traders.

According to Randy Frederick, director of trading and derivatives at Charles Schwab, it may be a case of battle fatigue.

"The Vix is not really indicating where the broader market is going at the moment and it can't really stay at relatively elevated levels close to 50 indefinitely. No bad news is really shocking anyone any more and an elevated Vix is essentially an indication of surprise."

Michael Kastner, portfolio manager at SterlingStamos, said the recent behaviour of the index reflected the nature of the equity market slide.

"The sell-off has been orderly, not an outright collapse, we have not seen the last half-hour collapses that last year pushed the Vix up sharply."

Last October, the Vix surged towards 90, and after easing below 50, rose above 80 in November when the S&P 500 fell below 750.

Such readings for the Vix were stratospheric when compared to past peaks. At the height of the equity meltdowns in October 1998 and August 2002, the Vix failed to rise above 50. From mid-2003 to mid-2007, the Vix largely traded below 20, and in late 2006 and early 2007 it fell below 10, establishing record lows.

During the summer of 2007 as the credit crunch emerged, the Vix rose above 30 for the first time since the run-up to the invasion of Iraq in 2003. In recent days, the Vix has hovered around the 50 mark, still indicating considerable distress, but sharply lower than last October.

Marc Pado, chief market strategist at Cantor Fitzgerald, said that for many bears the current level of the Vix suggested that market participants are not exhibiting the levels of fear that typically point to the market having reached a nadir.

Let's see... Volatility as measured by ATR is a pretty good representation of the VIX. I showed that years ago in the Investor's University on this site. I also provided the formula to simulate what the VIX should be at. Now that actual volatility is increasing, options premium is decreasing. There is very little hedging going on right here. I don't see how one can present a bullish spin on that. My COT work has proved that it pays to fade what the small funds are doing. If these guys aren't paying up for options, shouldn't that signal an alarm bell? D