Monday, September 12, 2011

An alternative to the VIX for measuring fear in the market!

The VIX is a one traditional way of measuring the fear in the markets!

Other tools include the price of gold (record highs) and the yield on US treasuries (record lows).

By any measure used the indications are that major angst exists over the potential for global recession and global economic crisis led in no small part by the fear of EU sovereign debt default.

A VIX alternative for measuring risk using "at the money" and "out of the money" put options on the S&P 500 expiring in October!

From Seeking Alpha:

"At the time of writing:

At-the-money put: SPY with strike price $120 Oct 11 trades between $5.43 (the bid) and $5.44 (the ask)

Deep out-the-money: SPY with strike price $92 Oct 11 trades between $.50 (the bid) and $.52 (the ask).

Not to be too technical, the value of American options - which can be exercised before expiration - is determined by using a binomial tree model that uses the following inputs..."

Read the rest of the analysis here.

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