Are the VIX and other indicators indicating a short-term top to the market?

We’ve had quite a run up after inflation numbers seem to be showing that the FOMC doesn’t have to be as aggressive in the future, but perhaps the markets have gone too far too fast.  The day before that, the market seemed to be prepared for a crash over a cryptocurrency problem with FTX, but the market quickly shrugged that off.  The simplest indication of this general lack of concern could be from the VIX index, which is the market’s expectation of future movement in the S&P 500:

While the VIX is near 6-month lows, we see that over the last 2 trading days, the VIX is rising in spite of a rising stock market.  This is an indication that traders are buying options – and that could be coming in many forms, from put buyers to hedge long stock positions, to put buyers speculating a fall, or call buyers replacing stock positions, or a number of other strategies to take advantage of rapid market movement.  Traditionally, when I see the VIX rising along with stocks, I tend to think that the market participants are telling me that they aren’t full comfortable buying the market, and that’s concerning.

Perhaps one of the most logical reasons behind this buying of options is to simply look at the relative movement over the last 20 trading days and the implied volatility in the S&P 500:

*From CBOE LiveVol

As you can see, realized volatility has been significantly higher at nearly 29%, meaning that on a close-to-close basis, the market is more volatile right now than what traders expect in the future, and that’s factoring in the recent rise in the VIX.  That could be a concern as those selling options right now are not being paid a premium to do so.

Additionally, one could compare the Average True Range (ATR) of the S&P 500, which illustrates the average daily range (as opposed to the realized volatility calculation, which is based on close-to-close price movement).  For the S&P 500, that’s been $8.55 over the last 20 trading days.  That’s about 2.15%.  If one could capture that daily movement optimally by buying the low and selling the high, the realized volatility annualized would be over 34% vs a VIX of just over 24%.  Again, the market is moving more than the options are pricing in.

It’s not practical to think that any trader will buy the low and sell the high every day, but it does help explain why the VIX is getting a bit of a bid here.  The market is showing large ranges, and even on a close-to-close basis, the VIX looks underpriced.

There are a number of technical indicators to review in the market, as well.  But I’ll save that discussion for my webinar this afternoon.  Don’t forget to sign up and join me as I will be discussing the VIX, ATR, multiple technical indicators, and of course, how I look to apply this type of setup to my options trades!

So please go to to review how I traditionally apply technical signals and probability analysis to my options trades.  As always, if you have any questions, never hesitate to reach out.

Keith Harwood

[email protected]

See Related Articles on

Is This A Short Term Top?

Chart of Day: Albemarle (ALB)

Top Ways to Trade Gold’s Potential Rebound to $1,900

Risk Management

Trading With Simple Logic That Wins

TradeWins Logo
© 2022 Tradewins Publishing. All rights reserved. | Privacy Policy | Terms and Conditions | Contact Us

Auto-trading, or any broker or advisor-directed type of trading, is not supported or endorsed by TradeWins. For additional information on auto-trading, you may visit the SEC’s website: All About Auto-Trading,
TradeWins does not recommend or refer subscribers to broker-dealers. You should perform your own due diligence with respect to satisfactory broker-dealers and whether to open a brokerage account. You should always consult with your own professional advisers regarding equities and options on equities trading.

1. The information provided by the newsletters, trading, training and educational products related to various markets (collectively referred to as the “Services”) is not customized or personalized to any particular risk profile or tolerance. Nor is the information published by TradeWins Publishing (“TradeWins”) a customized or personalized recommendation to buy, sell, hold, or invest in particular financial products. The Services are intended to supplement your own research and analysis.

2. TradeWins’ Services are not a solicitation or offer to buy or sell any financial products, and the Services are not intended to provide money management advice or services.

3. Past performance is not necessarily indicative of future results. Trading and investing involve substantial risk. Trading on margin carries a high level of risk, and may not be suitable for all investors. Other than the refund policy detailed elsewhere, TradeWins does not make any guarantee or other promise as to any results that may be obtained from using the Services. No person subscribing for the Services (“Subscriber”) should make any investment decision without first consulting his or her own personal financial adviser, broker or consultant. TradeWins disclaims any and all liability in the event anything contained in the Services proves to be inaccurate, incomplete or unreliable, or results in any investment or other loss by a Subscriber.

4. You should trade or invest only “risk capital” money you can afford to lose. Trading stocks and stock options involves high risk and you can lose the entire principal amount invested or more.

5. All investments carry risk and all trading decisions made by a person remain the responsibility of that person. There is no guarantee that systems, indicators, or trading signals will result in profits or that they will not produce losses. Subscribers should fully understand all risks associated with any kind of trading or investing before engaging in such activities.

6. Some profit examples are based on hypothetical or simulated trading. This means the trades are not actual trades and instead are hypothetical trades based on real market prices at the time the recommendation is disseminated. No actual money is invested, nor are any trades executed. Hypothetical or simulated performance is not necessarily indicative of future results. Hypothetical performance results have many inherent limitations, some of which are described below. Also, the hypothetical results do not include the costs of subscriptions, commissions, or other fees. Because the trades underlying these examples have not actually been executed, the results may understate or overstate the impact of certain market factors, such as lack of liquidity. Simulated trading services in general are also designed with the benefit of hindsight, which may not be relevant to actual trading. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. TradeWins makes no representations or warranties that any account will or is likely to achieve profits similar to those shown.

7. No representation is being made that you will achieve profits or the same results as any person providing testimonial. No representation is being made that any person providing a testimonial is likely to continue to experience profitable trading after the date on which the testimonial was provided, and in fact the person providing the testimonial may have experienced losses.

8. The author experiences are not typical. The author is an experienced investor and your results will vary depending on risk tolerance, amount of risk capital utilized, size of trading position and other factors. Certain Subscribers may modify the author methods, or modify or ignore the rules or risk parameters, and any such actions are taken entirely at the Subscriber’s own election and for the Subscriber’s own risk.