When VIX*SKEW is LOW, BUY $XAUUSD GOLD now
Here is a quick diagram of the relationship of two of my favorite indicators combined with Gold.
I've got to get this out to you now, and follow up later with more details.
Sometimes a picture is worth a thousand words and sometimes I have to spell out the words, which may be the case with this one.
Many worry that VIX is low, but low VIX is not a worrisome sign at all and frankly all by itself it has a low batting average at calling major market moves. However, if you blend it together with its far more powerful cousin, the SKEW, you get a more detailed view of what is going on in the market.
If you've seen my other posts on VIX, you will see for yourself. I use VIX in very different ways that are logical and not just to catch headlines, like I see everywhere. People often use VIX to justify their position, which is interesting in itself. I imagine you have have heard the beating drum of "DANGER: LOW VIX' for a long time now.
Let's think through VIX together: VIX is a measure of options prices of the S&P500 nearby in time and near the money. If people are selling options, it drives the VIX down. If people are buying options it drives the VIX up. The next piece is the SKEW. SKEW tells you the ratio between the prices of puts and the prices of calls. The higher the SKEW, the higher the price of puts is to the price of calls. High SKEW alerts you to high put prices, but relative to call prices.
So, what would make SKEW be low and VIX be low? When people are selling puts. This is not a good situation for the market in general.
On the other hand, when VIX & SKEW are high, it means people are buying put options, and it means the market is building a foundation of support as that put-buying creates hedges to protect against selling at lower prices. As the VIX*SKEW is rising, it is bearish, however. So wait for it to stop rising and for prices to stop falling to set up long trades after a big run up. Sorry to have digressed.
The other situation of interest is when VIX is high and SKEW is low. That means that people are buying call options. That is not a good sign if the market doesn't keep rallying after this happens. Why? Well, who is left to buy? If you get short covering, then buying, then margin buying, and lastly call option buying.... That's a good way to look at it.
I'll see if I can publish this chart when I get back to my desktop which has higher resolution and a nicer look. But wanted you to have this now because it is TIMELY NOW.
Tim
4:55AM EST, 1:55AM PST from Las Vegas, NV
I've got to get this out to you now, and follow up later with more details.
Sometimes a picture is worth a thousand words and sometimes I have to spell out the words, which may be the case with this one.
Many worry that VIX is low, but low VIX is not a worrisome sign at all and frankly all by itself it has a low batting average at calling major market moves. However, if you blend it together with its far more powerful cousin, the SKEW, you get a more detailed view of what is going on in the market.
If you've seen my other posts on VIX, you will see for yourself. I use VIX in very different ways that are logical and not just to catch headlines, like I see everywhere. People often use VIX to justify their position, which is interesting in itself. I imagine you have have heard the beating drum of "DANGER: LOW VIX' for a long time now.
Let's think through VIX together: VIX is a measure of options prices of the S&P500 nearby in time and near the money. If people are selling options, it drives the VIX down. If people are buying options it drives the VIX up. The next piece is the SKEW. SKEW tells you the ratio between the prices of puts and the prices of calls. The higher the SKEW, the higher the price of puts is to the price of calls. High SKEW alerts you to high put prices, but relative to call prices.
So, what would make SKEW be low and VIX be low? When people are selling puts. This is not a good situation for the market in general.
On the other hand, when VIX & SKEW are high, it means people are buying put options, and it means the market is building a foundation of support as that put-buying creates hedges to protect against selling at lower prices. As the VIX*SKEW is rising, it is bearish, however. So wait for it to stop rising and for prices to stop falling to set up long trades after a big run up. Sorry to have digressed.
The other situation of interest is when VIX is high and SKEW is low. That means that people are buying call options. That is not a good sign if the market doesn't keep rallying after this happens. Why? Well, who is left to buy? If you get short covering, then buying, then margin buying, and lastly call option buying.... That's a good way to look at it.
I'll see if I can publish this chart when I get back to my desktop which has higher resolution and a nicer look. But wanted you to have this now because it is TIMELY NOW.
Tim
4:55AM EST, 1:55AM PST from Las Vegas, NV
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