Masking A Market On Edge?

As a society, we are obsessed with seemingly random numeric milestones: Dow 10,000. Obama's first 100 days. The 20th episode of 'Options Action.' (The last one might be a stretch, but for those keeping score, that would be May 29th). But one number that has grabbed everyone's attention is 30, or more specifically, the level the VIX broke through yesterday.

Does it mean the party can begin again? Does it signal the long-awaited healing of our broken capital markets?

I suspect not.

As we frequently reference on O/A, the VIX is not so much a "fear index" as it is a "movement index." The higher the VIX, the greater the expected move on the part of market participants. Or put more simply: less movement = lower VIX. And that's exactly what we've seen.

"During January when the VIX averaged 45, we saw 12 moves of at least +/-3% from high to low in a single day in the SPX," said 'Options Action' sensation Stacey Gilbert. "In February we saw 10 such moves, 12 in March and 4 in April when the VIX averaged 45, 45 and 38 during those respective months."

With the VIX now in the high 20s, May has seen a total of two intraday moves of +/-3%.

So have we hit option market terra firma?

Perhaps, but as we pointed out in our last episode, volatility in the industrial and retail sectors, while certianly off earlier highs, remains elevated, indicating that investors are still weary of big moves for stocks like FedEx and Saks.

Moreover, the stunning colapse in option prices for financials have reduced volatility for the overall market, perhaps giving some the impression that everything is fine, and masking a market on edge.

Questions, comments send them to us at: optionsaction@cnbc.com

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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