Spike in the VIX = Market Capitulation?

I’ve been talking about the VIX for the past several days saying that market capitulation is at hand. Well, today I do think we got our capitulation as the VIX (volatility index) hit a record high, at least since it was redefined in 2003. The major averages are all putting in bottoming tails, and are recovering nicely going into the close. Let’s keep our fingers crossed that the worst is over.

Brave investors might want to buy some long-term calls (6 months or more) on the index tracking stocks, as I mentioned previously. An even more speculative play would be to buy puts on the VIX. (The Feb20 puts are trading for about 75 cents.)

M&A Update:
I gritted my teeth and hung in there with Bluegreen (BXG). The stock almost made it back to $9 but interest waned near the end of the day where it closed at $8.86.

M&A Activity Today:
Warren Buffett offered to infuse much-needed capital into Constellation Energy (CEG) after Standard & Poor’s put the company on credit watch. Of course, the capital infusion comes with a hefty price tag, that being a $26.50 per share offer for the company’s outstanding shares. This may seem like a nice premium over yesterday’s closing price of $24.77, but considering that the company was trading at an all-time high of $107 last December and at $70 only a month ago, I’m sure Constellation’s shareholders aren’t going to be very happy, to say the least. But Wall Street is betting that Buffett can pull another rabbit out of his hat by sweet-talking company investors. All he has to say is, ” Look what happened to Lehman.”

Anyway, it’s not a done deal until tomorrow when a definitive agreement is expected to be signed by the end of the day. Today’s five point volatility in Constellation’s stock may have been a reflection of investor uncertainty, and how can you blame anyone for thinking that the Constellation shareholders aren’t going to have something to say about it?

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