The Mind Money Spectrum Podcast

#21. Why the VIX is useless.

May 05, 2020 Aaron Agte and Trishul Patel Season 1 Episode 21
The Mind Money Spectrum Podcast
#21. Why the VIX is useless.
Chapters
The Mind Money Spectrum Podcast
#21. Why the VIX is useless.
May 05, 2020 Season 1 Episode 21
Aaron Agte and Trishul Patel

In this episode, Trishul teaches Aaron what it means when the VIX is over 30, and things get a little wonky explaining all the technical math behind stock market volatility. They appropriately compare options to insurance and gambling. And they discuss the Black-Scholes pricing model and how market forces determine implied volatility. In the end, they discuss how understanding the VIX can be a useful tool, but trying to rely on it for investment predictions can be just as dangerous as any other future prediction methodology.

Episode References

VIX - Definition
Annualized Standard Deviation of Monthly Returns
The 68–95–99.7 Rule
Black-Scholes - Definition
Investing Forever - Risk Management 101
Investing Forever - Introduction to Volatility
Investing Forever - The Normal Distribution
VXX: Investing (Short) in Volatility
Volatility Blow-up Leads to Inverse VIX ETN Casualty

Podcast Description

Welcome to The Mind Money Spectrum Podcast where your hosts Aaron Agte and Trishul Patel go beyond traditional finance questions to help you explore how to use your money to achieve the freedom you want in life. Aaron is a Financial Planner from the Bay Area, and Trishul is a Wealth Manager on the East Coast. For more information about Aaron, check out GraystoneAdvisor.com. And for more information on Trishul check out InvestingForever.com. We thank you all for listening, and stay tuned for our latest episode on our website, MindMoneySpectrum.com.

Show Notes

In this episode, Trishul teaches Aaron what it means when the VIX is over 30, and things get a little wonky explaining all the technical math behind stock market volatility. They appropriately compare options to insurance and gambling. And they discuss the Black-Scholes pricing model and how market forces determine implied volatility. In the end, they discuss how understanding the VIX can be a useful tool, but trying to rely on it for investment predictions can be just as dangerous as any other future prediction methodology.

Episode References

VIX - Definition
Annualized Standard Deviation of Monthly Returns
The 68–95–99.7 Rule
Black-Scholes - Definition
Investing Forever - Risk Management 101
Investing Forever - Introduction to Volatility
Investing Forever - The Normal Distribution
VXX: Investing (Short) in Volatility
Volatility Blow-up Leads to Inverse VIX ETN Casualty

Podcast Description

Welcome to The Mind Money Spectrum Podcast where your hosts Aaron Agte and Trishul Patel go beyond traditional finance questions to help you explore how to use your money to achieve the freedom you want in life. Aaron is a Financial Planner from the Bay Area, and Trishul is a Wealth Manager on the East Coast. For more information about Aaron, check out GraystoneAdvisor.com. And for more information on Trishul check out InvestingForever.com. We thank you all for listening, and stay tuned for our latest episode on our website, MindMoneySpectrum.com.