Volatility Slows


As traders continue to feel out the first week of trading in 2012, a key theme has begun to come to fruition.

That theme is market volatility. The de facto gauge of volatility in equities, the CBOE Volatility Index or VIX, has been on a steady decline since it dropped below the key 30 point level several weeks ago.

The index dipping under 30 is considered to signal calmer markets as fear subsides from investors. Usually, equities and the VIX are inversely correlated with the index dropping rapidly in bull markets.

For the past two weeks, the VIX has hovered around 25 but has since dropped even lower to 22 points as of Wednesday despite increasing concerns over the fate of Europe and problems related to sovereign debt holdings and bank debt.

While outlook on future VIX performance varies among traders, some believe that the index is set to head even lower. Some have even gone so far as to say that as long as there isn’t a major credit event or market event in January, dipping below 20 is a real possibility.

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