The Market is Hiding Risk

When the market is going bananas sometimes the VIX does not make a lot of sense.

Take yesterday, with the S&P 500 down 95 points, about 3%, the VIX was only up .71!

Given the giant move in the SPX, one might assume that VIX would be up way more.  

The risk is there, it’s just hiding.  See below for what I’m talking about.

You have to remember that the VIX was already pricing itself at over 31 when the day started.

With a VIX close on Tuesday of just under 32, the VIX is pricing in 2% movement a day…

That means that in order for the VIX to go up substantially today, we would need the market to be worried, not only about today’s movement, but selling for the next month…

…that does not seem to be in the cards…

The S&P 500 is being driven by tech, the QQQ, which was down almost 5% today.

In the QQQ, I think one can see a better representation of the risk:

The VXN, the VIX of the Nasdaq 100 (NDX)  closed the day at over 41.  

41 is a full 10 points above the standard VIX, this is just below the high for the year (a year that includes the Covid crash)…

Which also happens to be the widest spread between the VIX and VXN in over 10 years.

So, while the VIX was down, I do not want you to think that the market does not perceive risk.  

It does…

It just is not in some of the metrics many traders look at.

The VIX light is Yellow, meaning it could go up or down but is likely to swing wildly.

Your Only Option

Mark Sebastian

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