Don’t write off the VIX yet!

Among a flurry of articles stating that the VIX was broken, the old fear gauge finally shows signs of life today. After spending the last week with a 10 handle, levels not seen since pre-financial crisis in early 2007, a double digit decline in the S&P 500 futures yesterday caught some traders by surprise.

The VIX jumped over 10% today to finish at 12.13%. This 1.15 advance is the biggest gain in this index since April 10th, some 51 trading days ago.

The CBOE’s short term 9 day VIX measurement showed an even larger percentage rise yesteday (as it is designed to do) increasing 1.74 points, almost 17%.  Again the resultant 12.01 closing level is nothing to get excited about by anyone; however, yesterday’s modest move in the index of losing 10 points in the futures and 12.63 points lower in the index, was only a 64 basis point decline based on the historic high levels we are at in the index.

History has taught traders recently that buying dips has been the ticket for success. I would caution our OptionsHouse family that market trends can change very quickly. The docile bullish market we have been trading can become a much more frightful place very quickly.

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