Quote from Nine_Ender:
I thought volatility reflects pace of change, not direction. If markets spiked up suddenly, wouldn't VXX go up ? Or am I misunderstanding something here ?
Quote from shortie:
VXX is not the spot volatility rather it is a trading instrument loosely connected to VIX which is the projected volatility 2(?) months away. does a spike up in the market today indicate we will have the same level of volatility as in the last few days? of course not. so there must be some other explanation for VXX persistence
Quote from atticus:
There is flood control on the interwebs, so I'll just say that it's path-dependent and lol to your question.
Shortie: Spot is 700bp over VXX pseudo-CMS (blended front month futs), so it's not going to approach 100 delta on a rally in SPX. I agree that spot is going to 36 in short order, so maybe 32 on VXX. The roll will keep it under 50 deltas.
Quote from Nine_Ender:
I'm very familiar with options; basically an increased VIX would indicate option sellers want more premium to make up for the increased risk of rapid one way movements in the market.
The source of confusion for me is Shortie continually relates higher VIX levels with rapidly falling markets. While that might be the case most of the time, I always thought it worked in both directions. Why would call sellers want to sell cheaply if the possibility of a sudden market rise was heightened ?
Quote from dwpeters:
I've seen it argued that the VIX could rise with a rising market, I've just never seen it happen to any extent. Do you have any examples where it did? My guess is the difference has to do with the differences between greed and fear, but then I focus more on what the markets do rather then trying too hard to understand why they do what they do.
Offhand the closest example I can think of to a "crash" up was spring 2009. For the 3 months from March 9th, SPY gained 40% while the VIX lost 40%.
http://stockcharts.com/h-sc/ui?s=SPY&p=D&st=2009-1-1&en=2009-7-1&id=p14019836768
Quote from Nine_Ender:
A spike up could mean we have higher volatility in some situations. For example, what kind of volatility levels existed on Nasdaq stocks in the late 1990s ?
I'm not that familiar with VIX/VXX so this is why I ask.