Monday, September 15, 2008

The market is very nervous, but it's not panic (yet)

The implied volatility of equity options (as measured by the VIX index) is pretty high today, as the chart shows, but it hasn't reached extreme panic levels. Nevertheless, significant rises in this index usually occur at times when the market is very nervous or very worried, and that is a time when equity prices tend to be their lowest. Peaks in the VIX index, in other words, signal periods of crisis, and more often than not these are times to be buying rather than selling. If you have the nerve. Things could still get worse, but the news of Lehman's failure ranks as awfully bad coming as it does in the wake of some other very large failures.

In one encouraging sign, just 45 minutes into the trading session the VIX has fallen from an opening high of 31 to 28.5.

No comments: