Vexed by VIX? Part 1

Wednesday, February 9, 2011

We are told that VIX (the Volatility Index for the Standard & Poor’s 500 Stock Index) currently indicates investor complacency and, therefore, a coming stock market drop. Actually, that warning sounded last October. So why does the stock market keep rising? Has VIX (a.k.a. the “fear index”) lost its way? Or are stock market investors overbuying, creating ever-higher risk?

Neither. It’s VIX’s misconceptions and misuse that are producing incorrect analysis. Let’s look at the problems and at the Chicago Board Options Exchange’s (CBOE) attempts to prevent investors from misusing VIX.

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This article is posted on SeekingAlpha.com

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