NEW YORK: A divergence between the expected volatility in the stock market and the oil market is now the widest since December 2008 but some market watchers do not see this as a sign that price swings may increase in the stock market.
The CBOE Volatility Index <.VIX>, the so called "fear gauge" of the stock market, has swung around a fair bit since touching a two-year high of 31.06 in mid-October but has crept back in recent days and on Tuesday fell to as low as 14.32, close to the lowest it has been this year.
Volatility in oil has increased and the CBOE implied volatility index for oil <.OVX> was at 53.72 on Tuesday, close to the highest it has been in over three years.
The gulf between the two is unusual, leading some commenters to suggest that stocks may follow oil volatility higher, but such a comparison is difficult to make.
Looking at the longer-term realized volatility in stocks and crude oil, there have been a number of times when the two have been completely unrelated, BGC Partners Inc equity derivatives strategist Jared Woodard said.
The broader stock market is currently reflecting a much lower amount of risk in the next 30 days than the risk in oil, said Ophir Gottlieb, chief executive of Los Angeles-based Capital Market Laboratories.
"The divergence between the two indicates monumental uncertainty in oil prices in the short-term," Gottlieb said.
Booming oil production in North America and OPEC refusing to cut output have sent both U.S. crude
The falling oil prices did affect the VIX, but with the market factoring in the lower oil prices the VIX has rebounded, said J.J. Kinahan, chief market strategist at retail brokerage TD Ameritrade Holding Corp.
"It was just a repricing of stocks with the market saying, 'We had stocks priced for $70 oil. Now we have to price stocks for $55 oil,'" Kinahan said.- Reuetrs
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