Fear Gauge - TheFEARGauge AnIntroductiontotheVolatility...

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The FEAR Gauge An Introduction to the Volatility  Index   by Amy Ackers
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  Brief Overview What is the Volatility Index? Market tool for   investors Def: Index of implied volatility of eight put/call  options, near the money and second near the  money, for two stated strike prices given  by the  Ticker symbol is VIX Continuously quoted throughout each trading day Provides accurate estimate of short term stock  volatility
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The1987   Stock Market Crash Dow Jones Industrial Avg. fell 508 points (22.6%  drop) Largest one day drop in Stock Market History Overwhelming Volume of Stocks exchanged (600  million shares per day) U.S. Stocks dropped over 30% ($1 trillion) Chicago Board of Options Exchange (CBOE)  temporarily suspended trading in the OEX 
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Aftermath of Black Monday Reports state that derivatives market heavily  affected the stock crash Investors saw the dangers of “naked” put/call  options (infinite gains and losses) Faith in Options Market vanishes CFTC Report - “Massive Change in investor  perception.” 
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Creation of the VIX Established in 1993 by the CBOE Indexed investors’ feelings of stock option risk levels  Investors Characteristics of the VIX Index continually calculated throughout 9am-3pm CST trade day Represents implied volatility of a 22 trade day month for at-the-money  options of the OEX Values derived from the mid-point of bid/ask prices of the OEX index 
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Volatility: An Overview Volatility comes in two basic varieties:    Historical Volatility  - measure of standard deviation of  past daily returns during a specific time period .  It is a  published figure that can be found on almost any stock  that contains options   Implied Volatility
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Fear Gauge - TheFEARGauge AnIntroductiontotheVolatility...

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