Chicago's VIX measures market uncertainty

October 6, 2008 3:24:21 PM PDT
With such volatile markets, a measuring standard found in Chicago is now widely read by the financial world. As one pit trades Standard and Poor's index stock options at the Chicago Board Options Exchange, another pit is monitoring the CBOE's volatility index. Known as the VIX, the volatility index measures uncertainty and is now widely read and accepted in the financial world. During the past week, the VIX has soared to record levels.

"It's an indicator that are people think the market's going to move and it generally tend to be high when people are worried about large downward moves ," said Ben Londergan, CBOE Market Maker.

On October 9, 2007, the Dow Jones Industrial Average hit an all time high of 14,164. On Monday, it dipped into the 9,500s before a late rally and close brought it to just over 10,000.

The market has lost just under a third of its value during the past 12 months and most stock-based retirement accounts have lost value. But 61-year-old Joe White isn't worried. He moved much of his 401k out of the stock market.

"If you're concerned about your money a year out, the next couple of years, you need to pull out money to spend, shouldn't be in the stock market," said Joe White, Retirement Account Investor.

At the union league this afternoon, Heizo Takenaka--the former Japanese minister of economic and fiscal policy--said his government could have done more to head off that country's ten year old recession. And he praised the U.S. government's intervention with last week's bailout bill.

"10 years ago we had a confidence crisis and to some extent we are facing this," said Heizo Takenada, former Japanese Finance Minister

But the bailout did not prevent today's stock market slide...nor did it improve the volatility index that predicts an even rougher road ahead.

"Typically what's tended to happen historically is when the VIX spikes like this you're nearing a bottom," said Londergan.

Londergan says the VIX this week and last is hovering in the mid-50's. During periods of relative stability, he said, that number could be in the 30's. So perhaps that gives an idea of how stressed the markets are right now. No one ABC7 talked to predicted an end to it in the near term.


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