Dividends and the VIX

If you catch market call on CNBC or many other networks, invariably someone talks about the VIX and what is it doing in terms of volatility. The VIX is the seemingly go to guage.

In an article by Brenda Bouw, she explains the VIX helps capture investor emotion as measured by the CBOE (Chicago Board Options Exchange) Volatility Index. The VIX is a real time measure of expected market volatility in the S&P 500 index operations in the next 30 days.

In normal times, the VIX trades at between 15 to 20. On March 16 the VIX reached a record close of 82.69 and the Dow Jones Industrial Index fell 12.9%. The VIX in late April was around 63.

Kash Pashootan, Chief Executive of First Avenue Investment Counsel watches the VIX hourly as an indicator of short-term market behavior. He says when the VIX is trading outside of certain ranges, the market is trading on emotion and headlines. As a rule, he does not buy long term unless the VIX is less than 30. The higher the VIX the more the emphasis is on short term trading and an emphasis to build up the cash position.

Linking to dividend paying stocks, similar to all tools in the toolbox, you can have your favorites but no tool does everything. In the article, Brenda Bouw says tools are just that tools. The professionals use the VIX to help them, which means you should know about the VIX and what it says about the direction of the stock market. If you are not a professional, the VIX is important but do not spend a great deal a time on it. For us non professionals, one of the best tools is that the company announces and pays a dividend; when that happens you can understand the meaning of patience and long term holdings.

There are more questions than answers, until next time – to raising questions.

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