Thursday, April 16, 2009

Implied volatility is plunging

I've highlighted the VIX index numerous times in the past, and it's noteworthy (and bullish) that it is now down to levels not seen since last September. There is a similar index for the bond market that is published by Merrill Lynch, called the MOVE index: "This is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of volatilities on the CT2, CT5, CT10 and CT30." It has also dropped significantly, and is now back down to the levels of last August, just before the big collapse in the market. Both of these indices are still above levels that one would consider "normal," but they are now far closer to normal than they are to levels corresponding to severe stress (note that the chart shows only month-end values for each index. The VIX peaked at 90 and on an intra-month, intra-day basis, traded well over 60 for most of October and November last year). Very bullish.

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