VIX Skew - Market Collapse Impending?

Quote from dtrader98:

Good Stuff, thanks.
I wonder if it is any more telling than say a put/call ratio metric...
or if the two are simply correlated. Any thoughts?
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I am cautious about put/call ratios on heavily traded issues. I love the ratio for illiquid names which all of a sudden show a huge disparity, but for the VIX, with nearly 250,000 contracts a day - prob not a great indicator.

For what it's worth, today its 7:1 calls: puts. It averages 2:1 calls: puts
 
Casual observation, the crisis started long before 09-09-08

In fact I recall about Aug. 2007 a big fall in prices and the media played it off as the "exchange had a glitch" due to all the "selling"
the truth, there were a lot of sellers AND the market couldn't handle it, beginning of that crisis, next one who knows


Quote from livevol_ophir:

The VIX is ~24.72 on today.

There has been some talk recently about the VIX options skew and how it indicates a possible severe market downturn. The rationale is how the skew looks today relative to early September 2009 (before that market collapse). The Skew for today (2-12-2010) and 9-9-08 are included in the article. Note the level of the VIX highlighted in yellow and the dates on the charts.

The Charts Tab snapshot of the VIX (2 years) is included in the article. Not that we needed a reminder, but the VIX exploded above 80.

So the talk recently (from some) has been that the similar skew today represents a risk of similar explosion in the VIX (an implosion in the market). Fair enough. But how about a different angle?

I have included the Skew chart of the VIX from 7-7-2009 in the article. Note the similar shape to 9-9-2008.

The Charts Tab snapshot for that time shows of course that the VIX traded in a tight horizontal range after that skew - certainly no explosion. The chart is included in the article.

So, a skew as we see today isn't necessarily a guarantee of the future (good or bad). For completeness I have provided the skew charts from 10-27-09 (right at the height of insanity) and from 3-5-2009 (the market bottom). Note how much flatter the front month is relative to the prior snapshots.

Details, skews, charts, prices in article:
http://livevol.blogspot.com/2010/02/vix.html
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Quote from pwrtrdr:

Casual observation, the crisis started long before 09-09-08

In fact I recall about Aug. 2007 a big fall in prices and the media played it off as the "exchange had a glitch" due to all the "selling"
the truth, there were a lot of sellers AND the market couldn't handle it, beginning of that crisis, next one who knows
More...

Yeah, I agree. I decided to go wth 9/9/08 just b/c it was a pre-cursor to a huge move in VIX - but yes, this didn't "start" in Sep '09... I agree.
 
It all started with the Bear funds in June 07. Then on the 9th of Aug 07, three BNP funds suspended redemptions. After that, arnd the end of August, it was the collapse of Coventree, the Canadian commercial paper conduit.
 
Quote from Martinghoul:

It all started with the Bear funds in June 07. Then on the 9th of Aug 07, three BNP funds suspended redemptions. After that, arnd the end of August, it was the collapse of Coventree, the Canadian commercial paper conduit.
More...

Yeah Bill Gross was calling for market crash with real estate underpinning back in 2004 I think ?

His timing doesnt have to be correct just direction, eventually:D


big $$$ easier to trade
 
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