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Thursday, September 29, 2011

Vix About To Roll Over?

I believe the fact that the VIX has made lower highs over the last few months is a good omen for volatility peaking out.  We might see the VIX spike back up to its August peak as the market breaks down below its previous lows, but I doubt it will go much further.  I am also happy to see that the 4th VIX futures contract, represented by “UX4″ above, is getting close to its 2010 highs.  I believe that the next week or so will provide a good opportunity to get short volatility.
With regards to the massive peak in volatility reached in 2008, as I have stated in prior posts, I do not believe that we will witness a complete financial freeze up like we saw in 2008.  This is an opinion and not a 99.9% confidence interval statement.  If there is one thing that 2008 should have taught you as a trader:  that you should leave your pride at the door.  Always make sure that you can survive the worst case scenario either through purchasing protection or correct position sizing.
We are two months into a market cycle that really has provided little *new* bad news.  A very ugly GDP number tomorrow or large confirmation of a double dip recession could change that significantly.

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