Explore Your Options  |  MAR 2005

Explore Your Options by Tom Gentile

Stocks & Commodities V. 23:3 (45): Explore Your Options by Tom Gentile Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C. TIME TO GO? Q: Tom, I’ve heard you saying, “When volatility is high, it’s time to buy, but when it’s low, it’s time to go.” I think it was in the context that volatility is increasing when stocks are falling and that’s a good time to buy. Conversely, when volatility is low, it may be time to take profits and avoid a correction. Do I have this right? Thanks — Rock A: The sayings “VIX is high, it’s time to buy” or “VIX is low, it’s time to go” are often used with reference to the CBOE Volatility Index ($VIX). The index tracks the expected volatility of the Standard & Poor’s 500 Index ($SPX), which is updated in real time using the prices of SPX options. In addition, VIX is often used as a contrary sentiment indicator.

by Tom Gentile