The VIX is surging on market fear, but not loathing

Changes in the volatility index indicate many on Wall Street are worrying about the next few weeks, but don't necessarily expect a major meltdown.

By MSN Money producer Feb 3, 2014 4:47PM

Red arrow © Fotosearch, Fotosearch, Getty ImagesBy Alex Rosenberg, CNBC 

The CBOE Volatility Index (VIX), a gauge of market fear, rose above 20 on Monday for the first time in four months. But the broader action in the VIX suggests that traders don't expect the market's current rout to last too much longer.


Though the VIX rose above 20 for the first time since Oct. 9, the move in VIX futures dated to August, September and October has been much more restrained, with some longer-term VIX futures contracts actually falling on the day. This would seem to indicate that while traders are fearful about what the next month or two will bring, they don't see the current decline as the beginning of a more serious meltdown. 


"Traders feel the event is happening right now, so they want protection in today's correction. Six months later, things could settle back into a normal market," said Brian Stutland, managing member of the Stutland Volatility Group and a major market maker in VIX futures and options.


This sort of action is typical for recent spikes in the VIX (which measures implied volatility based on the prices of S&P 500 options), but it need not always be the case.   

"At the end of 2007 through 2008, or even when you saw the fiscal cliff worries at the end of 2012, they were taking up all of the VIX futures -- you're not seeing that now," Stutland told "It doesn't mean there won't be volatility six months from now. What it means is that there's not extreme nervousness about any lasting effects about what's going on right now."


In fact, Stutland is predicting that the market has already reached its nadir -- and volatility its peak. On Monday, he took profits in the VIX and reduced his firm's exposure to volatility.


Holding longer-term volatility has not been a great play in recent times. There were only two brief periods in 2013 when the VIX topped 20 (in late June and in October); in each case, the action preceded a quick plunge in volatility as the stock market regained its footing.


Still, the fact that money is moving out of longer-dated VIX futures into nearer-dated ones certainly indicates that as the S&P 500 Index ($SPX) hits a nearly three-month low, the fear is very real.

 "What this is telling you is that people are paying up for short-term protection," said Larry McDonald, a senior director at Newedge who writes at "The pros think it's going to get worse over the next three weeks." 

More from CNBC:

Feb 3, 2014 5:05PM
Please dont let this market melt down were not finish milking the little guys yet.
Feb 3, 2014 5:31PM

Everyone paying attention to the FED policy for the last 5 years understands what is happening.

Feb 3, 2014 5:22PM
Could this have anything to do with the fed slowing the injections?
Feb 3, 2014 5:42PM
Correction is just beginning , and the market has been overvalued and overpriced for quite a while . Only thing keeping it up was the Fed , and that is ending . Time for a selloff that is long overdue , and for that matter , needed . We need to get back to realistic valuations like the market is supposed to represent , as well as reasonable profit expectations , instead of having a "get rich quick" mentality . All I ask for is a reasonable return , just like the market was originally designed to do .
Feb 3, 2014 5:22PM
Just the 1% throwing another tantrum because Uncle Fed is cutting back on QE.
Feb 3, 2014 5:05PM
Feb 3, 2014 5:12PM
During the last quarter it seems as though every week Obama was giving a speech about how well the economy was doing and pointed to the DJIA. So was quick to take credit. It will be interesting who he and his surrogate news media, MSNBC, claim to blame for is decline.

But one things for sure, he will use this little crisis to promote his agenda, including spread the wealth. He probably won't be happy until its all destroyed and then it will be fair and we will all be equal. My God, who votes for this anyway?

Feb 3, 2014 5:46PM

What reality is the market based on anyhow? We have been pumping tens of billions monthly into the market like a junkie on meth. Where should the market really be now? 8K, 9K, or 10K. What is really driving the market. Shouldn't the market had an influx of retirement money before the end of the year.

Someone please tell what is driving this Obama economy. And don't tell me food stamps, healthcare, and unemployment as I am serious.


Be afraid very afraid folks.

The US economy is going to collapse by Sept 15 2015 ...

1) The Death Spiral of lost jobs and an ever weaker and weaker economy is still with us

2) more retired people are taking money out of the market than newbies are putting into the market

3) For the market to be stable this year the Fed will have to pump 145 billion a month into it

4) Soon inflation will rear it's ugly head and the Fed will start to raise interest rates
this will cause CD's and other interest bearing accounts to out produce a falling stock market and make a good return vs inflation. So besides the retired people taking their money out of the stock market so will the smart money moving it interest bearing accounts pushing the stock market down down and down.

5) there is no coming back from this collapse the Fed will not be able to do anymore QE's and they will be forced to raise interest rates north of 10 percent to attract buyers to US Treasury bonds.

Feb 3, 2014 5:03PM
Feb 3, 2014 5:22PM
Don't worry be happy...Obama will save us!  LMAO
Feb 3, 2014 5:55PM
Wall Street just throwing a tantrum because the Fed is cutting back on the sugar tit. Every time they drop a few hundred points Uncle Ben has run in pledged to continue the QE3, just a tantrum for the new girl. She will probably cave and stop the 10 billion a month cuts in QE3 to get the market back up.
Feb 3, 2014 6:04PM
Where are all those status quo koolaid drinkers?

The sooner the market finishes off the street and the progressives, the sonner we get back to rebuilding.

Die market --- DIE !
Feb 3, 2014 6:08PM

There's No Need For Fear:       "The "Bear Is Out of Hibernation"

Fear is what drove America during the "Great Depression"

" Fear of The Unknown " We know better and we understand now....

"It's not the end of the World" as most think it to be "It's the End of Wealth on Paper"

We got caught up in a "Feeding Frenzy". Stocks growing at an unheard of precedent, fed  by cheap money and a Government buying back bonds at an unheard of rate.

The Corporations were grabbing the "Bull" by the horns, not just for the corporations but every 401k and retirement program out there.   Everyone was yelling "More, More I want More". And Corporate America yelling "Yes, Yes You need More". And profits that should have gone into hiring and expansion went to profits of shares. Companies "Raising Their Own Stock by Buying Back Large Blocks of Their Own Stock". COE's selling "Stock Options" received when being hired made Millions....

And as the Government Created a false Market So Did The Corporations Themselves

Since March 9th of 2009 to Dec. 10th of 2013 the DOW rose "153.27%"

An adjustment is due and it will be  " Of Great Proportion" and it should.

The Sun will come out tomorrow, the "Bull Run" is over BUT it will be back 

Feb 3, 2014 5:35PM
I'll tell you exactly where the DOW is going. Two more days like today and then it will stay there. How do I know? Because that would maximize the amount of money I will lose. Haha!
Feb 3, 2014 6:15PM
Tom Morgan can't have it more wrong...........
the "little guys" subsidized by Obama are the ones milking the know the 47%%%

There is way too many people allowed to say anything just because IT shows a very selfish concern...and they don't have enough living

Stop giving hay to the cow and see how much milk she gives huh?

Morale: people like Tom have been given everything since day ONE and they haven't learned to make it on their own, so what do they do? They milk the cow and when it milked out, they kill it.
Feb 3, 2014 5:03PM
The market reaction over the last two weeks shows the result of Obama's policies that are hurting business and jobs. Obamacare is killing small business opportunities where a high percentage of the jobs are created. The so called "tax the rich" policy also kills a lot of small business. Finally, the market build up was based on unsound monitory policy that can not be sustained. This will get worse unless some of these policies are reversed with the mid term elections.
Feb 3, 2014 5:54PM
They keep saying that the investors are worried. Talk about a major lie. It's the brokers and traders that are making a big to do over nothing. Today's fiasco was nothing more then a monkey see monkey do day. Japan was low, so was Europe, and the USA was too. Now will Japan stand on their own two feet tonight and start a better trend or will they be just as stupid as the USA and follow suit. Only time will tell.
Feb 3, 2014 7:44PM

Hopes and Dreams:

I hope everyone over the age of 55 "Sells their stock TODAY" and places it in a " non-taxable Cash Account"..

It's our turn to reap the rewards of a "Bull Run"..

The Companies, who have been buying back their own stock are as much to blame for this overvalued market as the Government is for making cheap money and buying its own bonds..

When the smoke clears, "And It Will" re-invest..

The "Bear" is out of hibernation.. but remember The "Bull" will be back.....

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.