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Volatility Storm Ahead

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Better buckle your seat belt and prepare for a rough ride. Jon Najarian thinks we’re heading into a volatility storm!

Of course when he talks about volatility he’s talking about how much fear is on Wall Street as measured by the CBOE Volatility Index – or VIX .

How does it work?

Essentially this index uses a wide range of strike prices of various calls and puts that are all based on the S&P 500 to determine how nervous investors are.

If those strike prices are very wide ranging it results in higher volatility -- because investors are betting on bigger moves.

Confused?

Just remember a larger VIX number means investors anticipate a larger move in the S&P. Now back to Najarian.

He tells Dylan Ratigan on CNBC’s Closing Bell that he’s seeing massive call buying in the VIX. That suggests big investors are betting on another leg down.

“I think if we get some concrete news from Washington we could see the VIX drop to the low 40’s. (Remember it's currently around 49.) But if we don’t -- and that’s what Wall Street is betting on -- we will see higher volatility and more violent moves next week.”

In other words, until the market gets more clarity on what’s in store for Citigroup , Bank of America and other firms holding distressed assets, prepare for rough seas -- you could be tossed around a bit.


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