With the spot Vix trading at multi-month lows, some traders are insisting that the fear gauge is broken.
After all, there are plenty of woes vexing investors; from the fiscal cliff to the potential slowdown in China, fear is in almost every corner of the market.
But Jon Najarian tells us the Vix is doing exactly what it should be doing - and it's revealing something very important.
The spot Vix measures the range of puts to calls trading in the market, and the current range is narrower than it has been in quite some time. That narrowness is what the low Vix reflects.
“That doesn’t mean there’s no fear in the market,” insists Najarian, “it simply means with all the fear in the market, big money investors expect the market to be stuck in a range.”
After the broadcast, Najarian insisted that we look not only at the spot Vix but also the future contracts for some months to come. “All of it is barely moving,” he says. “Retail investors need to understand that.”
As we said above, don’t take the low Vix as a sign that fear has come out of the market – take it as a sign there’s so much fear in the market, options investors are expecting a kind of paralysis. In turn that leaves the S&P stuck in a range.
Posted by CNBC's Lee Brodie
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Trader disclosure: On August 20, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Steve Grasso is long S; Steve Grasso is long PFE; Steve Grasso is long XLU; Steve Grasso is long MO; Steve Grasso is long MHY ; Steve Grasso is long LNG; Steve Grasso is long FRO; Steve Grasso is long D; Steve Grasso is long BA; Steve Grasso is long ASTM; Steve Cortes is long FB; Steve Cortes is long LQD; Steve Cortes is long PPH; Steve Cortes is long XLU; Steve Cortes is short MEX PESO; Steve Cortes is short XME; Steve Cortes is short IWM; Steve Cortes is short COH; Jon Najarian is long AAPL CALL SPREADS; Jon Najarian is long JPM CALL SPREADS; Jon Najarian is long GDX CALL SPREADS; Jon Najarian is long GLD CALL SPREADS; Jon Najarian is long SBUX CALL SPREADS; Jon Najarian is long FB CALL SPREADS; Jon Najarian is long GLUU; Jon Najarian is long CBOE; Jon Najarian is long CME; Jon Najarian is long S
CNBC.com with wires.
