Vix and Put Call ratio

[stevenpaul]

The Vix is going up and so are the Vix futures. The stock market is going up along with the Vix, which is atypical (I think happens 16% of the time). The article below is saying that this means a sell-off is imminent because option-investors are buying protection in the form of SPX puts, meaning they're bearish (as though their opinion counts).

https://seekingalpha.com/article/41...ket-signal-says-stock-sell-coming-soon?page=2

However, the put call ratio at .64 today shows an imbalance of calls over puts--more calls than puts. It has declined since before the Vix started rising from the 9s to its current level in the 11s.

Can the Vix rise along with equities due to call buying, rather than protection buying with puts? Does this have implications for the predictive value (if any) of the Vix?

 

[JackRab]

The vix can't fall forever... so yes it can rise along with equities. IMO the reason for the change in the vix is what you should look for to determine whatever prediction is possible.

If the vix rises because the skew rises due to buying in puts, that mean people are looking for downside protection. This could mean a downturn is coming up... especially if the market is kinda flat, meaning no new money is entering equities.

But it could also mean people are buying stocks with insurance attached. So the idea is that the market will continue to rise but they want some basic protection.

Vix rising due to increase in OTM call buying, what is happening now I think... could just mean people don't want to risk full investments, but rather take the option... and others aren't as willing to sell because we're obviously still in a persistent bull market. If it's in combination with selling equities... then I would also say it's slightly bearish.

 

[JackRab]

Also... I think the daily moves are somewhat bigger than they we're in the past 6 months... which means that ATM implied vols should be a bit higher, also contributing to a higher vix. Volatility is not just to the downside... also up.

 

[Kevin Schmit]

The Vix is going up and so are the Vix futures. The stock market is going up along with the Vix, which is atypical

It's even more counter-intuitive than you think. Vol indices are usually sticky delta (VIX effectively, VXO explicitly). A Layspeyres vol index (chain-weighted on yesterday's atmf vol mark) would show an even larger vol rise. Under normal circumstances you'd expect vol to be walking down (right, towards the OTM call side) the curve during a smoothly rising market.