Would you mind going into detail a bit more about VIX?
As someone that loves to research markets, I am often skeptical of arguments such as: traders are witnessing the signal and they are now putting or calling options. Who are those sellers? Do actually so many individuals that trade stocks regularly read about the markets that they make such quick decisions? Or is it the power of the investment funds that witness economic news and immediatelly sell or buy, thus they are the ones making the market a bear or a bull?
Still at the beginning, so excuse me if it all doesn’t make sense!
Great questions! Different traders have different time horizons which impacts how they incorporate all that information into their investment process. I would note that in bear markets, things happen faster. Meaning that stocks can fall quickly while powerful bear market rallies can come from nowhere.
Now with VIX, I look at this a couple different ways. As noted in the newsletter, I laid out how to use it as a panic indicator. I will also pay attention to VIX levels and breakouts/breakdowns because that can influence the institutional crowd. That happens through strategies that target a specific risk level in their portfolio, like with risk-parity funds or volatility-targeting quant investors. As volatility levels pick up, they sell stocks to stay within their risk parameters (creating more downside pressure in stock prices) and vice versa when volatility is falling.
Would you mind going into detail a bit more about VIX?
As someone that loves to research markets, I am often skeptical of arguments such as: traders are witnessing the signal and they are now putting or calling options. Who are those sellers? Do actually so many individuals that trade stocks regularly read about the markets that they make such quick decisions? Or is it the power of the investment funds that witness economic news and immediatelly sell or buy, thus they are the ones making the market a bear or a bull?
Still at the beginning, so excuse me if it all doesn’t make sense!
Thank you!
Great questions! Different traders have different time horizons which impacts how they incorporate all that information into their investment process. I would note that in bear markets, things happen faster. Meaning that stocks can fall quickly while powerful bear market rallies can come from nowhere.
Now with VIX, I look at this a couple different ways. As noted in the newsletter, I laid out how to use it as a panic indicator. I will also pay attention to VIX levels and breakouts/breakdowns because that can influence the institutional crowd. That happens through strategies that target a specific risk level in their portfolio, like with risk-parity funds or volatility-targeting quant investors. As volatility levels pick up, they sell stocks to stay within their risk parameters (creating more downside pressure in stock prices) and vice versa when volatility is falling.
Hope this helps!