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The Scary Fear Correlation

עודכן: 14 בספט׳ 2020

In one Sentence -

Identified on time - your are safe

Not identified on time - it can be very pain full

And this is how it looks like in the past one year :

Vix - Beyond the obvious

What is VIX?

To better understand the trading of VOLATILITY assets it is better to understand more in depth the index and the rolling mechanism of the ETFs based on it.

The VIX weighs the implied volatility in the prices of CALL / PUT options on the S & P500. The index is published by the CBOE. Millions of private and institutional investors own shares that pay dividends on a continues basis. Even in times when market declines - their interest can be to hold those shares over time. To hedge up their risks of falling prices - they buy Put options on the S&P500. As more investors tend to purchase more Put then Call options on the S&P500 - the VIX index rises. As the expectation of market declines increases - investors buy more PUT options and the VIX index jumps. Since it is an investors act of fear from losing thier money, the rising VIX reflects the growing panic in the market - the VIX sometimes called the Fear Index.

It is important to emphasize that the index is characterized by MEAN REGRESSION tendency. Therefore any deviation from its average is usually short-term, which makes the understanding of the timing and mechanize extremely critical.


Anyone who dives into the graphs will realize that each time the blue line breaks up the red line, the major indices represented in the top two graphs - the S&P 500 and the NYSE Composite index - begin to decline.

In some of these breakthroughs there is a short-term decline or correction (not to mention that in the last 5 years the main trend has been a trend).

What happened on Feb 21-2020?

Correct - the economic world has begun to internalize the meaning of the Corona Virus epidemic

As a result, the VIX rose sharply and passed the 80 (Normally it ranges from 10-25).

We are still in the midst of the incident - and this is also reflected in the fact that the blue line is still above the red line. The calming sirens and graduation parties were too early and mainly reflect the wishful thinking of leaders who are worried about the implications for the gloomy economic future.

And this is how it looks 5 years back:

Nobody like to lose money - especially when there can be an advance big warning on the wall

The Omaha Guru - The legendary Warren Buffet said he has two investment Laws:

Investment Law # 1 - Don't Lose Money !!!

Investment Law # 2 - See Law # 1 !!!

To be ready for the next time and also to know when the current event will end:

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