Quote Originally Posted by pete View Post
fascinating conclusion for whats going on under the surface, never seen it from that point of view.

as far as i got the VIX calculation, it uses both, nearterm puts and calls.
if net shorts would hedge with calls, then the call side should add to the calculation similar in VIX direction than puts for long protection, so the VIX should rise again?
am i missing here something on the put side?
Pete,
You are right. I should have checked back the VIX calculation before writing the obviously wrong “VIX only tracks put options volatility”.
What I really had in mind was the usual interpretation of spikes in the VIX as being reflective of hedging of long positions in reaction to fear of a falling market by investors. Fear is pure emotion and then, yes it would be rational to interpret the VIX spikes as potential market bottoms. But such a widespread interpretation can prove totally wrong if under the hood the VIX spike is due to hedging of net short positions with calls. The “fear” would then lead to emotionally protecting from a rally and It could rationally mark a temporary top in a downtrend.
So, the current apathy in the VIX can mean an emotionally balanced market with as much fear of missing a new rally as of missing a new down leg. After all, isn’t Mr.Market the champion for fooling the most people most of the time?
Billy