Indiana Grain Company, LLC

Posted: 01/23/10

By: tomgrisafi

Barack Obama's speech this week on the proposal to "curb" banks risk-taking, sent over an interesting message to investors.

The reaction was heavily noticed at the Chicago Board of Options Exchange, where the Volatility Index ended the week up 22.6%, trading at 27.31. The VIX is an index designed to track market volatility. The main goal of the VIX is to estimate the implied volatility of the S&P 500, over a 30 day period. The most common nickname for the VIX is "Wall Streets fear Gauge".

The big sell-off in the S&P this week is leaving many options traders who bet on a surge in volatility very happy.

Statistics show the VIX moves in the opposite direction of the S&P nearly 80% of the time. Traders who buy options that gain in value when the VIX rises are usually betting equities will retreat because of this.