Volatility Index Is Kicking Up

08/27/2015 8:00 am EST

Focus: OPTIONS

Bob Lang

Founder and Chief Analyst, Explosive Options

Given the rise of put protection and the increase of short-term fear, Bob Lang, of ExplosiveOptions.net, thinks it makes sense the market would tumble, especially given the uncertainty over the economy, China, Fed policy, etc., so Bob takes a technical look at the monthly chart to put the Volatility index into context.

The markets have been on quite a wild ride lately and the volatility index has clued us into how everyone is getting stomach pains. The up and down of this market is giving market participants nausea, but the downward moves have been sharp and deadly, seriously threatening a six year bull run. Much of the damage has taken place over the last few days. Strikingly, with markets so close to all time highs just a week ago (less than 1% away), that record seems an eternity away now. The market giveth, the market taketh away.

chart
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Volatility Index Chart

The chart of the VIX is completely off the charts. Given the rise of put protection and the increase of short-term fear, it makes sense the market would tumble, especially given the uncertainty over the economy, China, Fed policy, and other scud missiles yet to hit their targets. With a move above 40 the VIX is in rare territory and even the move over 50 on Monday was only seen on a few occasions. At this point, option premium is high due to the extreme implied volatility. I suspect more wild and extreme action to occur, so time to buckle up. We’ll walk through the monthly chart to put the VIX into context.

Volatility Index Chart Analysis

Take a deeper dive into the chart action (VIX) and learn how to read the technicals and my analysis as I mark up our chart of the week.

By Bob Lang of ExplosiveOptions.net

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