Posted
Aug 11 2009, 12:53 PM
by
Anthony Mirhaydari
With stocks falling on Tuesday, options traders are betting that the declines continue. The CBOE Volatility Index ($VIN.X), which is based on the implied volatility of S&P 500 options traded in Chicago, was up as much as 8% in mid-day trading -- the largest one-day gain since June.
According to Bloomberg, over the last five years the VIX and the S&P 500 have moved in opposite directions 81% of the time. Increased uncertainty is normally accompanied by the selling of stocks, not buying -- so this is a bad omen.
The VIX's rise comes a day after we learned that the relationship between short-term and medium-term volatility expectations had reached levels not seen since last August -- just before the stock market collapsed and the credit crisis went nuclear. Based on this reasoning, one could expect a sizeable drop in equities over the next few weeks as September, a historically difficult month for stocks, approaches.
Bing: More on the "VIX"
Since 1929, September has been the worst month for investors:
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