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The Fear Index Is Trading At A Multi-Year Low And This Is Great For Investors

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The Fear Index Is Trading At A Multi-Year Low And This Is Great For Investors

The CBOE Volatility Index, commonly referred to as the "fear index" traded as low as 10.49 on Friday, which marks the lowest level seen since July 3, 2014.

The index is calculated based on various S&P 500 put and call index options. The index tends to rise when investor sentiment turns bearish and falls when investor sentiment is skewed towards the bullish side.

According to a CNBC report, the fact that the index is trading near levels that haven't been seen since before the financial crisis is a positive sign for investors as it makes it a bit easier to pick winning trades.

All investors have to do is pick a sector that is poised to grow under President Trump's administration. It doesn't necessarily matter which individual company an investor picks since they will all likely perform similarly.

"You're starting to see a lot more differentiating between the stock market, and that's driven the correlations down, and that's kept volatility low," Peter Tchir, head of macro strategy at Brean Capital told CNBC. "That means it's finally the stock picker's market."

The volatility index trading at such low levels also implies that investors believe any correction in the overall market will be short-lived and followed by a strong rebound.

 

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