Here you can find definition of VIX and VXN http://www.investopedia.com/terms/v/vix.asp
In plane English VIX is a measure of Implide volatility for broader market (S&P) (VXN for NASDAQ 100)and is a measure of market risk and is often referred to as the "investor fear gauge" It is connected to options premiums, in our case mostly to PUT options. Put options are bought as protection on the long positions, they will increase in value wnen the market is going down (volatility is rising). Low VIX (VXN) means that investors are not ready to pay big premiums to protect their holdings, rising VIX (VXN) is telling us about anticipated move down in the market (rising fear and desire to pay higher option premium for protection).
2 comments:
Sufiy,
Good post. Can you explain the VIX and the VXN a little more?
Here you can find definition of VIX and VXN
http://www.investopedia.com/terms/v/vix.asp
In plane English VIX is a measure of Implide volatility for broader market (S&P) (VXN for NASDAQ 100)and is a measure of market risk and is often referred to as the "investor fear gauge" It is connected to options premiums, in our case mostly to PUT options. Put options are bought as protection on the long positions, they will increase in value wnen the market is going down (volatility is rising). Low VIX (VXN) means that investors are not ready to pay big premiums to protect their holdings, rising VIX (VXN) is telling us about anticipated move down in the market (rising fear and desire to pay higher option premium for protection).
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