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You may recall that I drew a chart of the VXO (the simpler cousin of the VIX, which tracks volatility levels in near month index options instead of the more sophisticated basket used by the newer benchmark) for H2 1987 vs. our current market at the beginning of the month. The following day on Bloomberg television a young reporter chuckled when asked about the “charts of 1987 vs. today going around” and assured the anchor that they “aren’t really the same thing” –it’s different this time.

I agree that this is different –every market distortion is unique:

The VXO hit an intraday high approaching 172 in '87. Let’s put things in perspective: In '87 the markets weren't freely trading. There weren't enough stocks in the underlying index (The VXO was based on the OEX) to open even open the options initially so there wasn't free trading in OEX until around 11:00 in the morning on the day of the crash. They were only able to get through the opening rotation before the underlying index itself closed. With every market order hitting ridiculous premium levels, and the disorganization of the pre electronic trading environment I (for a single series of option there may have been a quote of 2 - 2 1/2 on one side of the pit and 3 - 3 1/2 on the other side of the pit).

The levels we see today, by contrast, represent the conviction of traders globally who are linked in a technologically efficient, much more transparent market. Simply put, with the asymmetrical liquidity distortions of the short selling ban now behind us these volatility levels are more “real” than those in 1987.

I am sure that that young Bloomberg reporter is a very bright person, but I have actually managed volatility real-time as a trader and my professional mentors include some of the sharpest minds that market has ever produced –It was my great fortune to learn lessons from their experience.

I am not predicting that the VXO will reach the same levels it did in 1987, but I am predicting that in the wake on this crash investors start listening more to experienced market participants and less to lapdog talking heads on TV who repeat propaganda of their hedge fund patrons.

If any customers have questions regarding options strategies in this environment I will do my best to address them. Feel free to contact me at

Andrew Barber
Director