VIX Nearing 52-Week Lows

Posted by urbandigs

Fri Mar 5th, 2010 04:05 PM

A: I need to get away from real estate for a moment. Taking a look at the VIX nearing 52-week lows makes me wonder about complacency and how cheap it is right now to buy some volatility? Maybe some puts? Anyway, when the VIX usually gets to this point its a contrarian signal to the markets that complacency might be settling in just a bit too much. The last time the VIX got this low was January 19th, when China's tough talk on curbing bank lending led to a 5-7% adjustment in markets. A hiccup in the grand scheme of things really. But with volatility this low again, I just wonder if a rattle might lie in the near future?

Here is a quick look at the VIX S&P 500 down 7.37% today.

vix-lows.jpg

The VIX "tracks prices that investors are willing to pay for options on the S&P 500-stock index, often to protect themselves against declines in stocks". As the VIX falls to 52-week lows it is a sign that complacency, or unawareness of dangers still out there, might be settling in. Many traders use the VIX as a contrarian short term signal and buy downside protection while volatility is cheap. It's been pretty spot on so far so lets see what the next week or so brings and if the markets are getting a bit 'ahead of themselves'.


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