In 1993, CBOE launched VIX. It’s fair to say that, at the time, most of the people who knew about VIX probably had a good idea of what the volatility index was and how it worked (since so few people knew about it). Nearly 20 years later, and despite millions of dollars spent on education and instruction, I think it’s likely that the ratio of informed VIX-watchers is much, much lower. VIX shows up on regular nightly newscasts – everyone knows about it – and yet even active day traders stumble over the basic concept.
Earlier this morning, I mentioned on Twitter that:
I think that second point is as good a litmus test as any for whether an investor should be trading options or not. But let’s leave that alone for now.
The first point is that subjective technical analysis on the VIX is just silly. We don’t need to rehash all the reasons why (see the previous link). What is striking, though, is that the forces of misinformation seem to be winning. All I have is anecdotal evidence, but I don’t remember this much muddled VIX commentary even five years ago. Someone sent along a link that led me to charts like this:
Before you scoff, remember that there are people out there risking capital based on analysis like this. I’m not sure how you feign a justified belief based on these lines and candlesticks, but apparently this sort of thing is enough to get a booking on CNBC.
Now, I don’t intend that agnotology reference literally: I don’t think that there are people who are out there intentionally misleading readers. But they might as well be. @largecaptrader1 jokes that, insofar as VIX confusion increases market inefficiency, maybe it is in the interest of professionals to encourage it. So, yeah: I hear that the Elliott Wave principle applied to a 15-minute spot VIX chart explains 95% of the data.