- Financial Survival Network
- Posts
- Markets: Are They Nuts?
Markets: Are They Nuts?
by Karl Denninger Market-Ticker.org
The VIX (implied volatility) is at extraordinarily-low levels.
This means that option “time values”, at least on indices generally, are very low as the expected moves are low.
For one example of how crazy this is, you can buy PUTs right now on the SPY (S&P 500 ETF) out for one year at about 4% of the current price. This means that if you have the index trade, at any time in the next year, at ~5% less than it is trading at today the PUTs will return a profit. If it happens in the first few months and it is a sharp decline then the VIX will likely spike and you will have lots of time value remaining, which means they won’t be a little profitable, they’ll be VERY profitable — quite-possibly a clean double or more.
Of course if there’s a crash in the next year they’ll be wildly worth it, but crashes are bad bets generally and always, so buying something for that purpose doesn’t make a lot of sense.