What determines the value of the VIX?

W

Wolfgang1756

Today the VIX went up 25% in one day!

Anyway, I am thinking what determines the value of the VIX?

I realize that mathematically it is the calculation of the implied volatility from the Black-Scholes equation, based on the price of SPY options, interest rate and dividends. But why...

...is it that when the S&P 500 goes down the VIX also usually goes up, but with no basic pattern. Sometimes it can go up 5% when the S&P 500 goes up 2%, but other times it can go up 10% or more.

So why??????

:confused:
 
Corey,

Thanks for your reply.

Yes I know that Volatility is one of the "greeks" of the Black-Scholes and exactly how the VIX is calculated, i.e. 30 day Spider options, etc

I mean fumdamentaly what determines the VIX?

I have heard that it the demand of Spider Puts that drives up the VIX, as people seek "protection".

BUT for each put that is written by a market maker, Spiders are sold and then delta-hedged and since there is an (almost) endless supply of Spiders out there why should the VIX go up?

If anything, the price of the Spiders or the S&P 500 index should go down.

Am I right?

I am so confued by all this :(

Wolfgang.A.M.
 
Thanks for the link. It has some serious scary math though :(

Its just that I want to long the VXX ETF so I want to learn more about the VIX.

I feel that market will go down and be VERY volatile in the next few months, so I want profit from all the volatility.

Basically if I am long both SPY and VXX then either way the market moves I make money :D Sweet, sweet money :D
 
That is NOT scary math, by any stretch of the imagination. Tedious arithmetic, more like.

If you consider yourself capable of counting all the "sweet sweet money" you'll be making, you should be able to deal with some simple calculations.
 
Quote from Wolfgang1756:

Thanks for the link. It has some serious scary math though :(

Its just that I want to long the VXX ETF so I want to learn more about the VIX.

I feel that market will go down and be VERY volatile in the next few months, so I want profit from all the volatility.

Basically if I am long both SPY and VXX then either way the market moves I make money :D Sweet, sweet money :D
More...

You do realize that Martinghoul and I posted the exact same link, right?
 
You do realize that Martinghoul and I posted the exact same link, right? [/QUOTE]

Oh :eek:

Sorry I am not good at math :(

Anyway I appreciate all your help. This is a great forum! I can already smell the money :D Sweet sweet money :D

Wolfgang.A.M.
 
Quote from Wolfgang1756:

Oh :eek:

Sorry I am not good at math :(

Anyway I appreciate all your help. This is a great forum! I can already smell the money :D Sweet sweet money :D

Wolfgang.A.M.
More...

Dude, I'm thinking you're a realized loss waiting to happen.
 
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