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The VIX is an index that measures the volatility of the puts options (is obtained from the eight most next options to the counted price of the American index S&P). The theory of this indicator is that if the market is bassist, the volatility of the options will enlarge since the investors will buy many options puts to cover its accounts receivable. If the investors are ups they didn't buy puts since they think that the quotations will rise and does not do lack to be protected.
Therefore, the VIX is an indicator of possible floors or long-term ceilings of the market. The problem is, which is the level that should reach the VIX to define a floor or a ceiling? In theory, when reaches values close to 20 is used to being sign that the market is forming a ceiling (therefore, the market will rotate to short) while in values over 40 is supposed that it is forming a floor.
The calculation of the VIX is carried out of daily form and can be consulted in http: //www.cboe.com.
Dpt. Analysis BolsaOne
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