When the VIX was rising ahead of the election/FOMC/NFP week...I was thinking this was warning that the rally was fizzling...
Bob put it into perspective by saying how VIX was really just like any other implied volatility measure...rising ahead of a big news event...Only to implode after the event.
While I am glad I didn't go short ahead of this news...next time I will do better and go long.
This was a great lesson learned from the opportunity I missed to really get in on the big moves of this week...
It is important to put movement in the VIX into context with the coming events...this enables better interpretation of higher (or lower) relative VIX prints.
Notice how the VIX was steadily rising the week prior to Halloween...this wasn't showing lack of rally health or a big move down...the reason was the big news events coming that the market was worried about...this increased put buying as insurance and so artificially inflated the VIX...
After the news hit (no surprises from the election or the FED) VIX imploded and we got the huge breakout rally...NFP DID surprise to the upside but the market had already gotten such a boost the day before we just managed to get follow through.
If the VIX is rising...first see if there are any major events coming up (FOMC, etc.)..if not then perhaps it is a warning of badness...but if there is news...it's likely the VIX is being artificially inflated....sell some bullish vertical put spreads...
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