The CBOE Volatility Index (VIX) is at its lowest level since 2007 and it is poised to break into the single digits. The VIX ended at 12.46 on Wednesday and the record low was set in early 2007 at 9.89. The VIX index is widely used a way to measure the level of fear in the market. Many investors are currently bullish about the future of the market in 2013 and the VIX index currently represents those views. However, investors should be concerned about the new lows in the CBOE Volatility Index. Retail investors are always late to the party and they have returned in mass lately. The last time that VIX index was this low was during the days preceding the financial crisis. While this doesn’t mean that we will see a new financial crisis in the near future, it isn’t good sign. The only place that the market volatility index has left to go is up. Also, the debt ceiling has yet to be fully resolved and a new partisan conflict could cause a spike in the VIX index. Investors can profit from a future spike in the VIX with call options.
2 thoughts on “Are New Lows In The VIX A Bad Sign?”
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Unfortunately most retail investors are usually way late to the game. It’s not a surprise that the cycle continues to repeat, because they get burned by buying at the top, selling at the low and then sitting on the sidelines until the next top. I read an article somewhere how funds have started pouring back into equity mutual funds. Could be a sign to get a little more defensive, although I’ll stick with my purchasing DG stocks at fair value or less and if those aren’t available then I’ll just sell some puts to get premium.
Thanks for the comment JC! It is really quite sad to see this happen to so many retail investors. My theory on why this is happens so frequently is the brokerages. Many brokers advise to purchase when the stock is rallying. The retail investor ususally misses out on the rally by then. Retail investors tend to follow analyst upgrades and downgrades heavily. Many analyst recommendations come too late.