Why the VIX may be Flawed Despite its “Cult” Status, The VIX Index is flawed by Design, and The Results show it

Background of VIX Index A measure of Volatility was needed after Black Monday, in 1987 Given a Name and Nickname (VIX comes from Name) The Volatility Index (Official) (The Fear Index) as Nickname Underlying is /VX Futures Does a terrible job in Official Role (0%) A pretty bad job at Nickname (50% at best) In fact, does dis-service devastating investors

Design Flaws in The VIX The VIX Index came to Being in the early 1990’s. Black Monday (’87) needed new Market Barometer Official Role - as a “Volatility Index” Developed a nick-name over time “The Fear Index” The VIX is not Tradable, its OPTIONS AND FUTURES are “Risk Horizon” is only 1.5 months. Call Options are Ignored Without Calls, how can we even think of a “Volatility Index” Options need an “Underlying”, The Futures /VX are picked VIX and /VX are very different, moves may not overlap This leads to Trader losses, due to lack of knowledge VIX plays a small role in creating Losses in Flash Crashes As a "Volatility Index” it falls Flat. Fear does a bit better

Role as a “Volatility Index” The Volatility Index (Official) Does a terrible job in Official Role (0%) Zero Percent in its official Role Well, let’s check the Facts Core design does not consider Call Options VIX value is based on SPX Puts demand Calls increase due to Math Imbalance Also Called Put Call Parity relationship Arbitrage opportunities WILL be closed down

Record is Spotty as (A Fear Index) Role as a “Fear Index” Record is Spotty as (A Fear Index) A pretty bad job at Nickname (50% at best) “Risk Horizon” average is ONLY 1.5 months What happens after 1.5 Months ? Outlook non-existent, or Incorrect, Unacceptable Instills FEAR for ALL the wrong reasons At Best a 50% credit

Misleading in a few cases The only Tool available to Retail Traders At times plays a role that harms investors Strange behaviors in Futures, Flash Crash etc Average True Range better than VIX (Volatility) And VIX of the VIX is unbelievable Like Flash Crash day – May , 2010 Within 20 minutes, SPX crashed 100 points And in 1 Hour recovered ALL OF IT BACK Became A big Learning (Costly) for many