Schaeffer's Trading Floor Blog

Will This Summer Bring Us a Single-Digit VIX?

Crunching the numbers to determine recent VIX seasonality

by 6/19/2014 7:35 AM
Stocks quoted in this article:

If volatility looks ugly now, just wait! We have regular expiration coming up tomorrow, followed by two weeks of likely snoozing into the long July 4th weekend.

Single-digit CBOE Volatility Index (VIX), anyone?

Probably not.

When I ran numbers for my book, I did find that the roughly two weeks between June expiration and July 4 were among the worst times of year for volatility. But that now comes with a couple of caveats. I ran those numbers in 2008, so it's a little dated at this point. And the whole nature of the options cycle has changed. We have Expiration Day every Friday now, quarterly options, strikes every $1, volatility ETFs, etc. The trading world is very different.

Anyways, I looked at the mean and median VIXes for each month going back to June 2009. In my book, I used expiration cycle months in my book, but for the following chart, I went with calendar months. Again, the nature of a cycle has changed so much that the effect of the "main" expiration on the path of volatility is almost non-existent. Open interest is now spread out over every expiration.

Here's how it looks.

Mean and Median VIX readings since 2009

Generally speaking, we have still seen volatility spikes in the fall, but summer hasn't exactly been a volatility trough in the last five years. VIX has actually done worse in spring than summer.

So buy every VIX Call!

OK, not really.

It's only five years of data, and it's a time frame where volatility is generally muted overall. We have seen VIX spikes though, and they have had undue effect. The biggest one was in August-September 2011, and the timing pretty much explains the high VIXes there.

It's not unrealistic to think we will see some VIX strength around then in 2014. But I don't think it will have anything to do with the calendar. Rather, the current trough is getting a little long in the tooth. We last popped in February. If we hang in until August, it will be about half a year. It's already been a while since the last blip. And since it seems unlikely we see one in the next few weeks, I'll put August down in crayon as as good a time as any to see the next one.

What will cause the blip? I predict whatever story happens to be in the news at the time the market does something it was going to do anyway. Financial TV will obsess over Said Story for a week, then a couple of weeks later, no one will care about it.

That's my Super Spike timing prediction!

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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