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Thursday, May 6, 2010
Soaring VIX May Signal More Trouble Ahead for Stocks - CNBC
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Show Entire ArticleSoaring VIX Index May Signal More Trouble Ahead for StocksCNBC.com | May 04, 2010 | 02:52 PM EDT
Europe's spreading debt crisis—combined with an overdue stock pullback and the prospect of the Federal Reserve withdrawing its economic support—added up to one thing Tuesday: Fear.
As the Dow Jones industrial average tumbled more than 200 points and safe-haven moves for US Treasurys escalated, investors sought protection with the Chicago Board Options Exchange's Volatility Index [ VIX 34.83
+9.92 (+39.82%) ], which soared as much as 27 percent in heavy trading.
The VIX allows investors to buy options protection against market tumult, and they took full advantage as the financial markets thundered. Tuesday marked the third straight triple-digit move in the Dow.
"When the stock market does this in conjunction with a flight to safety in bonds and a flight to safety in the dollar and the yen, then you should expect a jump in the volatility index," said Andrew Wilkinson, senior strategist at Interactive Brokers. "So we've got a nasty mix of so many different variables today, each from a different part of the globe, that's making for difficult navigation in stormy waters."
Stocks and the VIX tend to move in opposite directions, and Wilkinson said traders were leaning heavily toward calls on the index, which would indicate a trend higher in volatility.
Page 1 of 4 |The VIX was due for this kind of move!!!
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