Jump to content
House Price Crash Forum
Sign in to follow this  
Realistbear

Stock Market Crash Imminent? V I X Drops Most Since 1998

Recommended Posts

http://www.bloomberg.com/apps/news?pid=206...id=aAIJo685vdz4

Biggest VIX Drop Hides Options Bets S&P 500 Will Fall (Update1)

Share | Email | Print | A A A

By Michael Tsang, Rita Nazareth and Adam Haigh

July 6 (Bloomberg) -- The biggest drop in U.S. options prices since 1998 masks growing anxiety over the stock market’s rebound, as traders pay more for bearish contracts than any time since before the failure of Lehman Brothers Holdings Inc.

Investors are spending the most since August 2008 to protect against a 10 percent decline in the Standard & Poor’s 500 Index versus wagers on an advance, according to data compiled by Bloomberg. That’s one month prior to New York-based Lehman’s bankruptcy. The premium on so-called put contracts increased even after the Chicago Board Options Exchange Volatility Index, a gauge of U.S. options prices known as the VIX, fell 40 percent last quarter.

With the "green shoots" now illusory get ready for a backlash vs. the exuberance shown in the SMs of late.

House price drops of 30% this year still on.

Share this post


Link to post
Share on other sites
http://www.bloomberg.com/apps/news?pid=206...id=aAIJo685vdz4

Biggest VIX Drop Hides Options Bets S&P 500 Will Fall (Update1)

Share | Email | Print | A A A

By Michael Tsang, Rita Nazareth and Adam Haigh

July 6 (Bloomberg) -- The biggest drop in U.S. options prices since 1998 masks growing anxiety over the stock market’s rebound, as traders pay more for bearish contracts than any time since before the failure of Lehman Brothers Holdings Inc.

Investors are spending the most since August 2008 to protect against a 10 percent decline in the Standard & Poor’s 500 Index versus wagers on an advance, according to data compiled by Bloomberg. That’s one month prior to New York-based Lehman’s bankruptcy. The premium on so-called put contracts increased even after the Chicago Board Options Exchange Volatility Index, a gauge of U.S. options prices known as the VIX, fell 40 percent last quarter.

With the "green shoots" now illusory get ready for a backlash vs. the exuberance shown in the SMs of late.

House price drops of 30% this year still on.

Dire

Share this post


Link to post
Share on other sites
House price drops of 30% this year still on.

The bulls and gullible sheeple that fell for the VI property ramping will finally understand the meaning of "bull trap".

Share this post


Link to post
Share on other sites
http://www.bloomberg.com/apps/news?pid=206...id=aAIJo685vdz4

Biggest VIX Drop Hides Options Bets S&P 500 Will Fall (Update1)

Share | Email | Print | A A A

By Michael Tsang, Rita Nazareth and Adam Haigh

July 6 (Bloomberg) -- The biggest drop in U.S. options prices since 1998 masks growing anxiety over the stock market’s rebound, as traders pay more for bearish contracts than any time since before the failure of Lehman Brothers Holdings Inc.

Investors are spending the most since August 2008 to protect against a 10 percent decline in the Standard & Poor’s 500 Index versus wagers on an advance, according to data compiled by Bloomberg. That’s one month prior to New York-based Lehman’s bankruptcy. The premium on so-called put contracts increased even after the Chicago Board Options Exchange Volatility Index, a gauge of U.S. options prices known as the VIX, fell 40 percent last quarter.

With the "green shoots" now illusory get ready for a backlash vs. the exuberance shown in the SMs of late.

House price drops of 30% this year still on.

Where have you been RB - not seen many posts, if any, from you of late?

Are you still keeping tabs on San Diego HPs - do you have any gossip from the local market there?

Share this post


Link to post
Share on other sites
http://www.bloomberg.com/apps/news?pid=206...id=aAIJo685vdz4

Biggest VIX Drop Hides Options Bets S&P 500 Will Fall (Update1)

Share | Email | Print | A A A

By Michael Tsang, Rita Nazareth and Adam Haigh

July 6 (Bloomberg) -- The biggest drop in U.S. options prices since 1998 masks growing anxiety over the stock market’s rebound, as traders pay more for bearish contracts than any time since before the failure of Lehman Brothers Holdings Inc.

Investors are spending the most since August 2008 to protect against a 10 percent decline in the Standard & Poor’s 500 Index versus wagers on an advance, according to data compiled by Bloomberg. That’s one month prior to New York-based Lehman’s bankruptcy. The premium on so-called put contracts increased even after the Chicago Board Options Exchange Volatility Index, a gauge of U.S. options prices known as the VIX, fell 40 percent last quarter.

With the "green shoots" now illusory get ready for a backlash vs. the exuberance shown in the SMs of late.

House price drops of 30% this year still on.

This drop in the VIX is interesting.

A drop in the Dow of 50 points every day for 3 months is a lot less volatile than three months of up 200 points one day and down 100 points the next day even though the cumulative drop over three months is the same (4,500).

People often forget that the VIX is a measure of the violence of the moves rather than the direction. A proxy for the senitiment of the direction is in the volatility skew between puts and calls.

We could be in for a slow and steady grind lower with a relatively low VIX and large vol skew in favour of puts if the market holds this view strongly.

Share this post


Link to post
Share on other sites
http://www.bloomberg.com/apps/news?pid=206...id=aAIJo685vdz4

Biggest VIX Drop Hides Options Bets S&P 500 Will Fall (Update1)

Share | Email | Print | A A A

By Michael Tsang, Rita Nazareth and Adam Haigh

July 6 (Bloomberg) -- The biggest drop in U.S. options prices since 1998 masks growing anxiety over the stock market’s rebound, as traders pay more for bearish contracts than any time since before the failure of Lehman Brothers Holdings Inc.

Investors are spending the most since August 2008 to protect against a 10 percent decline in the Standard & Poor’s 500 Index versus wagers on an advance, according to data compiled by Bloomberg. That’s one month prior to New York-based Lehman’s bankruptcy. The premium on so-called put contracts increased even after the Chicago Board Options Exchange Volatility Index, a gauge of U.S. options prices known as the VIX, fell 40 percent last quarter.

With the "green shoots" now illusory get ready for a backlash vs. the exuberance shown in the SMs of late.

House price drops of 30% this year still on.

And can someone explain this in mumpty terms please?

Share this post


Link to post
Share on other sites
And can someone explain this in mumpty terms please?

Gambling?

Share this post


Link to post
Share on other sites
And can someone explain this in mumpty terms please?

what does it mean for house prices in the uk?

thanks RB, love your posts.

Edited by sophia

Share this post


Link to post
Share on other sites
And can someone explain this in mumpty terms please?

It's a confusing article because it refers to two different indicators giving contradictory predictions. As I see it it means:

Put options (a bet that the S&P index will fall) have increased in price due to their popularity - as many people now are buying them as were doing so just before Lehmans failure. This is a sign that lots of people are expecting falls in the S&P and is bearish.

At the same time, the VIX measure of volatility in share prices (average magnitude of daily movement up or down) has reduced. Volatility is usually considered to be higher during bear markets than bull markets, but I have no idea how true this is. Therefore most people will consider lower volatility to be a bullish sign.

Hence the odd title of the Bloomberg piece: "Biggest VIX drop [bullish indicator] hides bets S&P 500 will fall [bearish indicator]"

Share this post


Link to post
Share on other sites
The bulls and gullible sheeple that fell for the VI property ramping will finally understand the meaning of "bull trap".

Tell me about it! this VI bull$hit recovery stuff is just plain nonsense. In my area and surronding areas they are huge price drops on Property Bee! In fact one can now buy a 2 bedroom terrace in a ok-ish area for less then 90k...in a sh1thole area you're looking at about 50k. A complete reversal when compared to 2007!

My now-not-so-paper-rich mummy and daddy are also seeing there 'paper wealth' fall too LOL!!! House next door to them went up for £190k last Sept. Then reduced to 185k in Jan, and after further reductions it's now sittting there at 150k....and still NO FVCKER IS INTERESTED!!!!! My folks purchased their house in 1988 for 40k...no fvcking way is it worth more then 80k.

Share this post


Link to post
Share on other sites
Dire

Do you talk this much at work? :P:lol:

I think it's worse than dire, it's the worst case of diarrhoea, combined with vomiting and the added bonus of getting a hot poker rammed up one's bottom. And even then it's going to get worse.

Share this post


Link to post
Share on other sites
Gambling?

Yes, but why should we get worried, or rather us HPCers get excited, by the above? What are the options contracts?

What do the puts on those options mean for you, me and Joe Public? Why worry about it? Why now?

It seems to me that the financial industry had learnt a great deal from the Catholic Church of yesterday - have everything in a language that only a few 'elite' can understand - and then confound people.

Share this post


Link to post
Share on other sites
Therefore most people will consider lower volatility to be a bullish sign.

I wouldn't. What seems to be missing from your analysis is a sense of "when..."

Volatility refers to historic prices (as volatility is measured empirically) whereas futures/options refer to future prices.

Low volatility should lead to cheap options where priced algorithmically - with Black Scholles (or similar) and this promises a potential opportunity for intuitive speculators to profit at the expense of those who trust mechanical analysis. Of course, it might be a double-bluff... but that's another story.

Share this post


Link to post
Share on other sites
It's a confusing article because it refers to two different indicators giving contradictory predictions. As I see it it means:

Put options (a bet that the S&P index will fall) have increased in price due to their popularity - as many people now are buying them as were doing so just before Lehmans failure. This is a sign that lots of people are expecting falls in the S&P and is bearish.

At the same time, the VIX measure of volatility in share prices (average magnitude of daily movement up or down) has reduced. Volatility is usually considered to be higher during bear markets than bull markets, but I have no idea how true this is. Therefore most people will consider lower volatility to be a bullish sign.

Hence the odd title of the Bloomberg piece: "Biggest VIX drop [bullish indicator] hides bets S&P 500 will fall [bearish indicator]"

Thank you - you have explained the confusion that I could no6t quite put my finger on. Does seems a contradiction.

The VIX is falling, apaprently, but I am led to believe that it is still substantially higher than is needed for a 'safe' bull market.

Share this post


Link to post
Share on other sites
what does it mean for house prices in the uk?

The article is talking only about the US stock market. This has some relation to the UK housing market through many complex mechanisms too tedious to explain in detail.

Essentially I think it is likely that falling US stock prices is likely to have a bearish impact on UK property. However it is far from certain that this must be the case.

Share this post


Link to post
Share on other sites
I wouldn't. What seems to be missing from your analysis is a sense of "when..."

Volatility refers to historic prices (as volatility is measured empirically) whereas futures/options refer to future prices.

Low volatility should lead to cheap options where priced algorithmically - with Black Scholles (or similar) and this promises a potential opportunity for intuitive speculators to profit at the expense of those who trust mechanical analysis. Of course, it might be a double-bluff... but that's another story.

Okay, yes, I think that sounds convincing ... except that I know nothing about options pricing / Black Scholles...

So the odd title means something more like "Biggest VIX drop [indicator of recent low volatility] hides bets S&P 500 will fall [expectation of higher future volatility]"?

Edit: still not sure I get it. How would you summarise the point of the article in one sentence?

Edited by Selling up

Share this post


Link to post
Share on other sites
How would you summarise the point of the article in one sentence?

There's no evidence the issues raised in teh article will have any impact om UK houseprices. A non story. :rolleyes:

30% drops this year. :lol:

Share this post


Link to post
Share on other sites
Okay, yes, I think that sounds convincing ... except that I know nothing about options pricing / Black Scholles...

So the odd title means something more like "Biggest VIX drop [indicator of recent low volatility] hides bets S&P 500 will fall [expectation of higher future volatility]"?

Edit: still not sure I get it. How would you summarise the point of the article in one sentence?

Oh, I wouldn't try to summarise an article like this at all - let alone in one sentence. Nasim Telab ("Black Swan"; "Fooled by randomness") talks about the "ludic fallacy" - and I think that applies here... i.e. that there's a fallacious tendency to invent semi-plausible stories - even if there is no basis for it.

The snag with VIX is that it is forward looking (in contrast to my last post - where I talked about empiric volatility) - so, the apparent contradiction here needs a different explanation.

If an explanation can be found, it will lie in the details of how these statistics are calculated - IMHO.

Share this post


Link to post
Share on other sites

Here's a picture for those who prefer pictures.

Volatility Index (VIX) is the red and black line. SPX500 (US shares index) is the black line. So, the VIX, people's sentiment of volatility over the coming 30 days, tends to rise as shares tend to sell off. Sell offs tend to be accompanied by rising volatility.

You can see the extreme levels of the VIX back in Oct/Nov and how this has fallen as the market has risen since then. We're nowhere near back to the more 'normal' levels of the VIX that you'd see in a sustained bull market with lower volatility, nor even that of last summer when it was below 20 before the big sell offs.

2en87r4.jpg

Share this post


Link to post
Share on other sites
I wouldn't. What seems to be missing from your analysis is a sense of "when..."

Volatility refers to historic prices (as volatility is measured empirically) whereas futures/options refer to future prices.

Low volatility should lead to cheap options where priced algorithmically - with Black Scholles (or similar) and this promises a potential opportunity for intuitive speculators to profit at the expense of those who trust mechanical analysis. Of course, it might be a double-bluff... but that's another story.

There are two measures of volatility. Historic volatiltiy and implied volatility. Implied volatility is "extracted" from options prices and forward prices so it is a forward looking indicator. The VIX is an implied volatility.

Edited by LuckyOne

Share this post


Link to post
Share on other sites
Where have you been RB - not seen many posts, if any, from you of late?

Are you still keeping tabs on San Diego HPs - do you have any gossip from the local market there?

He's moved to east Sussex...the great RB could be within miles of where I live...swoon

Share this post


Link to post
Share on other sites
He's moved to east Sussex...the great RB could be within miles of where I live...swoon

I am currently terrorising the Estate Agents just east of Brighton where I am trying to find a nice rental to sit out the next year or maybe two. Now that Brown is admitting the green shoots were sourced in bovine excreta we have some dramatic drops ahead to look forward to. As Raymond Boulger says, houses are still unrealistically priced compared with wages and even more so when millions will be without wages in the coming years.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   295 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.