VIX 26

What becomes more dangerous when it is above 26, and less dangerous when it is below 26?

The answer is the Volatility Index (the VIX) which is often called the the Fear Index.

What some investors may not be aware of, is the importance of 26 on the VIX. It so happens that many Institutional investors initiate what are often referred to as "program trades" when the VIX rises above 26.

What is a program trade? It is a term that describes a situation where baskets of stocks are traded all at the same time, and the event is triggered by the execution of a computer program. Sometimes, these are block trades with a total value of over a million dollars, that are executed on the New York Stock Exchange.

The impact can cause unusual swings in volatility which carries a higher than normal exposure to risk levels for smaller investors.

Since program trades typically increase after a value of 26 on the VIX, then below 26 would be a quieter, safer place to be when trading long positions.

Take a look at the two year chart below. where you can see the correlation between the S&P and the VIX when the VIX was above or below 26. It is not a trader's magical tool, but it can alert an investor when he is in a territory where volatility and whipsawing can be exceptionally high.

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