Disclaimer: The information found on this site is meant for educational and informational purposes only. Nothing on this site should be construed as a recommendation or solicitation to buy or sell derivatives or securities or to trade any particular strategy. Trading of derivatives or securities has large potential risk and you must be aware of and accept all the risks. Past performance of any trading system or methodology is not necessarily indicative of future results. No representation is being made that any account will or is likely to achieve performance results similar to those discussed on this website. Hypothetical or simulated performance results have certain limitations and do not represent actual trading.
Thursday, May 24, 2012
VIX & VIX Futures Still Overvalued
- Well, from last Friday's close to Tuesday's low, VIX front month futures plunged from 28.25 to 22.85 or 19.1%. In fact, VIX front month futures fell to par of FVEF at its lows on Tuesday before jumping up again.
- As the red line shows on the top chart, FVE has actually been falling this entire week, which was an indication that the underlying market was becoming more stable. As shown on chart of SPY, we broke out of the short-term falling channel today.
- With all the headlines and fears and Volatility instruments like VIX & VIX Futures spiking up, it is very surprising that the underlying market's fall has been and still is orderly, relatively speaking. In fact, I'm surprised with all the doomsday scenarios out there, SPY has yet to test the 200-day moving average. Something is likely to give. Either SPY has much more to fall or VIX & VIX futures does. And what VIX futures price action showed me this week is that I should not doubt my FVE model.