Option volume on the CBOE Volatility Index (VIX) once again reversed sharply on Thursday.
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Proshares Ultra VIX Short-Term Futures shares are currently trading off about 13.1% on the day.
In other words, options traders are betting on a potential spike in the VIX.
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Proshares Ultra VIX Short-Term Futures shares are currently trading down about 2.8% on the day.
This year, the VIX has again declined to 15 in the past two weeks.
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The VIX has retreated to around 30 as traders prepare for the holiday weekend.
Moreover, the VIX experienced its first close below the 15 level since July 6, 2007.
Finally, put volume also spiked on the CBOE Market Volatility Index ( VIX) on Thursday.
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Furthermore, the VIX is now challenging overhead resistance at its declining 50-day moving average.
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The bottom line is: Based on SPX historical volatility, the VIX has room to move lower.
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However, losses could be quite steep if the VIX remains above 35 through March expiration.
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The VIX today is at 14.7, an even more extreme low, showing even less fear.
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The CBOE Market Volatility Index (VIX) closed below the significant 16 level on Friday.
Today, even as fear rises ever so slightly, the VIX struggles to break through 20.
It is important for investors to realize that these are NOT identical to the spot VIX.
Investors should also be aware that leveraged VIX ETNs have certain drawbacks as well.
In the case of VIX, these ETNs hold a collection of rolling VIX futures contracts.
The VIX closed Friday 32, closing in on its 52 week high of 32.07.
Bear in mind that, as late as August of 2008, the VIX was in the teens.
We went back and looked at the "VIX premium" at the last 4 short-term market bottoms.
The Vix is not the only measure of implied volatility that currently indicates a pacific outlook.
As you can see on the chart below, the current VIX premium is relatively high.
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The 15 level on the CBOE Market Volatility (VIX) acted as a floor last week, albeit briefly.
We saw a sharper reversal of sentiment among options traders on the CBOE Volatility Index (VIX).
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On a final note, the VIX closed Friday at 18.28, its lowest point since July 25, 2011.
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More sophisticated investors can also opt to trade options and futures on the VIX index itself.
On Monday August 13, 2012, the VIX closed at 13.70, a level that indicates relatively low volatility.
On a final note, there is a disturbing development in the charts of the VIX and SPX below.
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The close below 15 this past week confirms our thesis that the VIX has room to move lower.
Mean reversion would indicate that the VIX should eventually return to levels close to its prior trading range.
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