It costs about five times as much to insure a Ferrari than a regular car. That’s partly because with top speeds above 200 mph, the probability of an accident is much higher in a Ferrari.#-ad_banner-# The options market is built on that same principle of risk versus reward — except instead of fast cars, it’s all about the VIX. Also known as the “fear index,” the VIX measures investors’ expectations for volatility in the S&P 500 Index in the next 30 days. When the VIX is high, the market is expecting lots of volatility — and for options… Read More
It costs about five times as much to insure a Ferrari than a regular car. That’s partly because with top speeds above 200 mph, the probability of an accident is much higher in a Ferrari.#-ad_banner-# The options market is built on that same principle of risk versus reward — except instead of fast cars, it’s all about the VIX. Also known as the “fear index,” the VIX measures investors’ expectations for volatility in the S&P 500 Index in the next 30 days. When the VIX is high, the market is expecting lots of volatility — and for options traders, there is nothing more important than the VIX. It is the single most important factor affecting options pricing. With the Federal Reserve crushing expectations of weakness in the S&P 500, the VIX has been near record lows: That low reading on the VIX is both good and bad for put sellers. It’s good because it lowers the probability of being put shares. But it’s bad because it reduces the value of the premium I collect when selling a put. And with the VIX falling for the past few years, it has become less profitable to sell puts. … Read More