Thursday, October 3, 2013

Let's have a look at fear for a sec, well not really

Here's the $VIX, which is not a fear index. It is simply an index related to the demand for risk protection through options.

Normally when it gets above +2.5SD, it will move back within its 2SD lines and eventually even retest its EMA(16).

Here's XIV, an ETF which as far as I know shorts the short vix. Or something. It goes up when the S&P goes up, let's put it that way.

Big move down. So I guess there's real fear out there, though it certainly hasn't shown up yet in the SPY. In fact, I'm thinking maybe this means people are buying downside puts more than they're selling stocks.

Here's the $VIX term structure:

It's starting to get rather flat on the short end, no? Apparently a flat or inverted short end is a great time to buy XIV; supposedly you make great money when it starts to steepen back into normalcy.

I'm not buying XIV right now, but it's certainly in the back of my mind.

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