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VIX remains buoyed ahead of employment data

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VIX remains buoyed ahead of employment data

Strength in US stocks put the VIX volatility index on its heels, moving lower and testing support levels as traders put issues related to Syrian tensions on the back burner. With Friday’s non-farm payrolls beginning to loom larger in the face of potential tapering after the Federal Reserve meets to determine future monetary policy this month, the VIX should remain buoyed above the 15% level.

The VIX is an index that is derived from the implied volatility of “at the money” options over a 30 day period on the S&P 500 index.  The higher the level of implied volatility the greater the price a trader needs to pay for options.  When fear permeates the capital markets, implied volatility generally climbs increasing the value of the VIX.  When traders use options to hedge stock risks, they are essentially purchasing protection and paying a premium that is based on the current levels of implied volatility.

When the VIX is printing near 16% it means that traders estimate that the S&P 500 index will move 16% from its current level on an annualized basis.  For example, if the S&P 500 index is at 1650, then traders would expect the S&P 500 index to either be at 1,914 or 1,386 within 1 year.

Currently the VIX is testing support levels near 15.90, and a close below this level would likely lead to a test of support near the 50 and 200 day moving averages at 14.44.  Resistance on the VIX is seen near 18%.  Momentum on the VIX is positive with the MACD (moving average convergence divergence) index printing in positive territory near the highest levels over the past 6-months.

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