Options Report: Volatility in Options Market Remains High, Indicating Continuing Nervousness for Traders
NEW YORK -- A week that began with some of the most powerful rallies in the stock market's history ended with a whimper in the options market.</br></br>Volatility, a major factor in the price of options, remained at elevated levels, while equity and index options trading patterns indicated that traders were still nervous.</br></br>The option market's fear gauge, the Chicago Board Options Exchange Market Volatility Index, fell 1.93 to 28.31.</br></br>When the VIX declines, it normally means traders are increasingly optimistic about the stock market. But yesterday's expiration of April options contracts likely depressed the index. That is because dealers unwound hedges that had been initiated to offset risk associated with filling options orders executed by money managers and retail investors.</br></br>Indeed, Schaeffer's Investment Research, a trading-advisory firm, advised clients that it was shifting its short-term stock-market outlook to neutral from bullish because the VIX is trending higher. The VIX has closed above the psychologically significant 30 level for five of the past six sessions. "Whenever the VIX trends higher, the market tends to undergo weakness," Schaeffer's said in a research report yesterday.