Volatility Spikes - $VIX $GVZ $VXEEM

By Lawrence G. McMillan

With the stock market collapsing recently, option implied  volatility spiked higher in a large number of markets.  Of course, actual (historical) volatility has increased as well, but it is implied volatility that reflects more of the panic mood of the public, and thus is the one that can be used as a contrary indicator.  Just three issues ago, the feature article described $VIX spike peak buy signals, and now $VIX is spiking higher.  That same topic was the subject of the Striking Price column I authored in Barron’s Magazine last weekend.

But the spikes in volatility extend beyond the traditional one in $VIX.  In this article, we’re going to review all of the pertinent ones, and that will lead to some new recommendations.

Background

Since we addressed this topic not long ago, we will give only a brief summary of what spike peak volatility buy signals are, and how they occur.

When a market is falling quickly (which includes an individual stock, ETF, or futures contract), traders begin to panic.  In their panic, they pay up for out-of-the-money puts, in particular.  That raises the implied volatility of such puts...

Read the entire Volatility Spikes article (published 6/28/13) by subscribing to The Option Strategist Newsletter.