It's time to go long the VIX (Volatility)

Since the crash in August/September 2011, stocks had quite a rally. They're up for a correction, the VIX is bottoming out (Chicago Board Options Exchange Market Volatility Index: http://en.wikipedia.org/wiki/VIX )
Several events could trigger the next stock market crash in the near future: Most likely it will be Greece finally defaulting (and leaving the Eurozone) (probably on March 20th). It could also be the fact that economic data is worsening (early signs: Huge Baltic Dry Index crash to 2008/09 levels in January, energy consumption is down substantially in the US, non-adjusted employment data is abysmal), a full blown war in the Middle East, a hard landing in China, an implosion of Japan, even a chaotic breakup of the Eurozone.

1.) The long-term average of the VIX from 1990 until today is about 20.
2.) As of friday (2-17-12), the index is at 17.13.
3.) Back in July 2011 before the US downgrade and another round of EU debt problems, the index bottomed at 15.
4.) Afterwards, it shot up all the way to 47.5 in August/September 2011.



Long term chart of the VIX 1990-2010


As you can see from the following chart, the VIX is now undervalued relative to the S&P 500:
S&P 500 divided by Vix (Volatility Index) Ratio (S&P 500 (Log chart) green, Ratio red)


Note: If you decide to go long the VIX by buying options or ETNs or whatever, make sure you understand the risks and do your own research. A VIX investment requires close monitoring of the index to be profitable, because you need to sell when stocks crash

Yup, time for a pullback (which always takes VIX up) in 3....2....1....

Anytime now. I do that or a short multiplied etf when I see them coming. This last runup has already burned me once on timing though - longer than usual. I'm going to give it a couple more days or a confirming drop - maybe as the Greece deal falls apart?

EUO (short euro) down low too, and that can't be right for very long.

2 things..

1.. NDR sentiment was around 69 today. Every time the reading has gone above 68, we have had a correction that followed.

2.. Since the year began we've yet to have a single 1% down day on the S&P. Every time this has happened in the past, we've ended the year 15% higher.

Also.. The Euro/USD trade was played out last fall.. People really need to stop thinking in terms of USD/Euro when Gold is the only real currency that matters at this point.

DCFusor said:

Yup, time for a pullback (which always takes VIX up) in 3....2....1....

Anytime now. I do that or a short multiplied etf when I see them coming. This last runup has already burned me once on timing though - longer than usual. I'm going to give it a couple more days or a confirming drop - maybe as the Greece deal falls apart?

EUO (short euro) down low too, and that can't be right for very long.

Click to expand...

This calculation has served me very well in the past:
S&P 500 divided by Vix (Volatility Index) Ratio (S&P 500 (Log chart) green, Ratio red)
The VIX is now undervalued relative to the S&P 500
Once the ratio hits the yellow area, it's time to go long the VIX.:

Hmmmmmmm..........

It's also time to go long freeze dried food, .223, .270, 9mm and water filters. If you don't have 'em, get 'em cause it's going to get very ugly when [not if] Europe comes apart at the seams. We should all have a set up like DC either already, or at least in the works.

VIX is breaking out above 20 today

Picking a top of 26? (average +3)

Was anyone long HDGE for this move?

KMS said:

Picking a top of 26? (average +3)

Click to expand...

Difficult to say. I think there's a good chance for at least 30 this spring. If Greece finally defaults on March 20th, I think it's going higher.

Yeah, it looks as though it's upward movements are much more dramatic and sudden than any of its' downward movements after.

Good work, SA!

EUO and VXX, you betcha.

ZH is catching up to you guys:

http://www.zerohedge.com/contributed/2012-10-07/vix-suggesting-market-collapse-around-corner

With the market sort of range bound between 12,800 and 13,050, I think we're teetering on the edge. One look at volume tells the story. We've had record low volume on the DOW, with mom and pop out of the market. The algo's are doing it like rock-em sock-em robots, and one of these days, the bid will get pulled and it will all fall down. There are no fundamentals that I can see to justify Dow 13,000.

ancona said:

With the market sort of range bound between 12,800 and 13,050, I think we're teetering on the edge. One look at volume tells the story. We've had record low volume on the DOW, with mom and pop out of the market. The algo's are doing it like rock-em sock-em robots, and one of these days, the bid will get pulled and it will all fall down. There are no fundamentals that I can see to justify Dow 13,000.

Click to expand...

Looks like early 2008 all over again.

Hints of more QE in some form, Greece stories of it will or it won't get enough participation for CAC to kick in, ISDA maybe will or won't declare a credit event.

Man...I'm glad I'm mostly out at this point! Just a few small positions short euro, long oil, long gold - other than the last, pretty small by my standards - ~80% in cash just now. I fully expect dramatic moves both ways within a couple weeks here, and am just trying to decide whether to buy dips, fade rallies, both, or neither - my blood pressure is surely one of the things I want to keep under control too.

I may just take a nap, or go drive the fun car...you ever have that experience where one more cup of stimulant actually makes you sleepy? The markets seem to be doing that to me just now.

Yes, thank you for helping to confirm my personal position was smart as well. I saw the market making the progress it has, and I took my gains, and transferred funds into cash for what the writing on the wall is saying Greece will bring. Since this is all I can do with my 401k, I am basically stuck with what I can work with on the 401k scene.

KMS,
I got out of my 401K after twelve or so years and I am glad I did it. I paid a penalty and the tax I would have to have paid as I withdrew it anyway then bought PM's and paid down my home. I currently only owe a few grand on the crib and when I do pay it off, I will have zero fixed debt. With any luck, in a SHTF scenario, I will hook up my solar panels, power the well and have nothing but property tax. And the property tax presupposes there will be anyone in power to collect it in the first place.

I believe the 401K scam to be the biggest transfer of wealth in history, simply because by design, it was meant to pump up the stock market. There is simply no other reason for it. If I had n employer willing to match me dollar for dollar with cash, and that up to the statutory limit, I would do that for a while, cash out and pay penalties and retro taxes, still be waaaay ahead of the profit curve and buy PM;'s with it. I actually have some buddies who do just that every few years, and it works out quite well for them. Now, their employers take a harsh view of it but there simply is zero they can do about it.

My 401k money isn't reachable without a serious medical expense/emergency, short of quitting my job. I'm just saying, not all 401k are created equal.

ZH contributor CrownThomas with another vix warning:

The VIX index measures the expectations of market volatility out 30 days.

The VIX closed below 15 today - which means all is well, right?

As a reminder, the VIX was also calm like this about four years ago. And then the S&P promptly declined nearly 50%. As institutions pump up the price of equities, be very careful about who you're trusting with your retirement funds - history tends to repeat itself, and if it does in the case of the VIX level, you can plan on postponing retirement... again.
...

Click to expand...

Source (with pretty charts): http://www.zerohedge.com/contributed/2012-11-16/friendly-reminder-vix

I've been thinking along those same lines Bug.

When I look at the volume on the DOW, which while not an absolute benchmark, it is supposed to be made up with the most stable blue chip type companies out there. When I see action like Friday, which closed at nearly 400mm shares handled, as opposed to the average YTD of around 135 - 138mm shares handled, I see the same indicators that were flashed during the last crash. Everyone is in a fucking euphoria over a bunch of algorithms shaving pennies off of widows and retirees retirement accounts, as they churn the markets all day. The pathetic volume is indicative to me that it is nothing more than the Boyzz swapping paper between themselves. It can't go on forever, and as far as I can see, the tenuous [at best] situation in the Persian Gulf, with three aircraft carriers and a couple of heavy haulers along with the usual assortment of support vessels, tells me that something is absolutely imminent. War in the ME and a disruption of oil flow from the PG through Hormuz, is the worst thing that can happen. If the Brotherhood of Darkness actually follow through with this insanity, it will be the last war we fight for a very long time. Our credibility as a nation is already shredded, and our pussified TelePOTUS has long been neutered by the monied interests, so he will simply do as he is told, and the War Powers Act be damned. Leon Panetta has said out loud and in public, that he believes we take our marching orders from the UN.

We are so completely fucked up beyond all recognition that only complete collapse will save us. Unfortunately, a collapse of the system now will directly cause the deaths of up to a billion souls, who will not have prepared for a protracted period of time, within which paper promises to pay, letters of credit and all the rest, will no longer suffice for trade. We will be forced back in to a "cash up-front" way of business, which means that Chilean sea bass you like so much will disappear from all menus for the foreseeable future. Places that depend on imports to feed their people will quickly run out of food. Hundreds of millions of innocent should will die as a direct result of greed and arrogant imperialism.

While I do have a 6k square food organic garden, 10 laying hens and four ducks, it will take full time, 24 X 7 guarding with two or three of us to protect it from the Golden Horde. It will not be either fun or pretty, but my group has stockpiled a massive selection of open pollinated varieties of both determinate and indeterminate seeds, which will be distributed to any and all who need to plant a garden [which will be everyone]. We have close to a hundred pounds of seeds all together, which is enough [if distributed carefully] to grow an absolutely enormous amount of food. We use about ten ounces of seeds in total to plant our little plot, and six of us grow more than we can eat and can. I still have twenty five quarts and eleven pints of stuff from last fall, and nine jars of pickles.

GET SEEDS NOW. It will suck to eat nothing but veggies for a season or two, but it will suck even more to starve to death.

I believe we are approaching "go time" boys and girls. Time to put on those big-boy pants.

Sorry about the doom rant. :-(

interesting comment from a friend yesterday, whose son works for UK financial services regulatory authorities .....

so whats shaping up for the euro son ?

cant say much Dad but they are shitting themselves and having constant meetings to try and work out how to deal with what they think will happen ............

Ok we know this as we follow ZH but we also know that theres a bit of sensationalism in ZH reporting, so this seems like confirmation that the UK feds are really concerned and by extention, with good reason.

No need to apologize. Those of us awake have been getting ready awhile.

But a wounded animal is the most, not the least dangerous. What do you expect as the system goes down?

Worst case - payments frozen (your paycheck) but as the system has death throes, the banks, backed by police (guys with guns you dare not shoot at) go after whatever they can. As robo-signing proves - they don't care much about the truth either, and debt law favors the creditor (even if it's completely made up). You're guilty till proved innocent in that venue. And what fine did they pay? A few days worth of profit? Cost of doing business. Did the homeowners get any of that?

Onto the topic, yeah, whenever the ViX has been this down, it's time for trouble to arise, always has. This particular form of mean reversion usually overshoots wildly. Short spikes very high are required to "balance out" long times of just below the baseline in any AC coupled circuit.

I'd be watching this one really closely. Someone on BBurg did point out the other day that the longer term VIX measures were still high, though - it means everyone thinks we get a pass for a month or so, in other words, but not necessarily longer.

This could be in part people desperately selling calls to get income, covered or otherwise. Supply and demand, all that, reduces the price of options, which is what the vix is based on.

The VIX has had quite a rally recently even with the S&P 500 down only a bit. This could indicate much more trouble ahead

Seems like I was right about more trouble yesterday
VIX is now above 20

Didn't get into the VIX this time, but I must say that

long SPXU up 4.7%
long FXP - up 4.01%
and short HES (down 2.3%, but I'm short)

are making me very happy today, and gaining much faster than AGNC is losing.
Not that my gold holdings aren't smiling too.

Selling my VIX calls here. Bought at 17, vix is now 25. VIX is short-term overbought...

Must watch interview with a vega (volatility) fund manager ("vega" measures how much the price of an option would change when volatility increases or decreases)

"post traumatic deflation disorder"

lol