Vix needs to be reformulated ?

[mr_cassandra]

A ton of discussion on vix of late.

Modalities of the 'Imminent' VIX Spike - Seeking Alpha

CBOE Volatility Index - Barron's : Misreading the VIX - ^VIX - InvestorVillage

Stocktiming.com. Today's Stock Market Charts and Graphs. Get your free...

from my own experience, vix has been acting oddly for the past 1-2 years and accelerating.

These articles may have a valid point and vix may need to be re-formulated (again) to account for things like calls on 2X short funds should be lumped together not with equity calls, but equity puts.

Good articles.

 

[mr_cassandra]

You're welcome. I think stuff like this is the counterpoint to the tried and trite half truth ""all systems fail eventually"".

A better way to phrase it is: no matter what the subject, you have to be awake and aware to change. That way you can modify your approach if needed, having seen it coming.

For instance I had to convert my program over to $cpce, having seen the growing distortion caused in $cpc by the inclusion of index options years ago.

Something $cpc's inventor, Marty Zweig; never intended.

 

[mr_cassandra]

You.re very correct

I've lost track of how many posts and blogs I've read, as a for instance, with people pontificating at great length with charts and annotations about the put call ratio over the past few years. Many of them never even mention one word about the growing distortion caused by the inclusion of index options.

yet, for a fan of this contrarian indicator, invented by Marty Zweig decades ago, this recent years change is crucial to understanding why this indicator frequently gives buy signals way too soon.

It led to the cboe.com forming the equity ONLY put call ratio and then the same problem developed even with that, this time in the form of huge volume in qqqq puts.

So, in January 2005, the cboe gave a public notice at their site that they were taking out qqqq options for the same reason.

It's also a potentially salutory lesson in the value of having a true and deep understanding of your market (in this case, exactly HOW the vix is constructed).

Did fit nicely with what I had kind of already been thinking before your post.

GJ