Stock 'fear gauge' flawed, Citi equity trading chief says

Investors seeking to predict the magnitude of share price moves at times of market flux may get a faulty steer from a closely watched "fear gauge", one of investment banking's top equity traders has warned.

Citi's (NYS:C) Mike Pringle, global head of equity trading at the third-biggest U.S. bank, told Reuters that the VIX volatility index (^VIX), is now as much a traded asset as it is a guide to investors seeking protection from losses.

The VIX reflects Standard & Poor's 500 (.SPX) options prices and, therefore, expectations of future market moves. The idea is that as people become fearful of losing their money, they are more willing to buy a put option as protection.

At the moment, it remains at very low levels.

"A big mistake the market makes is looking at the VIX as an indicator of stock market risk. Why? Because it's an asset class and it's more traded for yield than protection," Pringle said.  (more)

Please share this article