Don't Sleep On the CBOE Market Volatility Index (VIX) Just Yet

The relative perception of the VIX depends on your time frame

by Adam Warner

Published on Aug 17, 2015 at 9:18 AM
Updated on Jun 24, 2020 at 10:16 AM

It's Monday, it's late summer, it's a range-bound market. How about we have a little fun with Selective Endpoint Theater: VIX Edition! 

CBOE Volatility Index (VIX) is now in the high 12s, which of course seems very low in this world of Yuan Devaluations, Fed Hikes?, et. al. But for the umpteenth time, it's really not low vs. realized volatility (RV), as 10-day RV sits in the mid-9s.

Yes, that may mislead a bit, as it fails to capture the full effect of big reversal days like we saw on Wednesday. But there's no real way to tweak it to make it much higher, as most days really do have low ranges. Market Not Rallying doesn't equal Market Volatile.

Besides, the relative perception of VIX does depend a bit on your time frame. Looking at 2015 as a whole, yeah, it seems quite low.

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If we started paying attention in late June, it really looks like a vol crash.

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What's with the massive complacency? Well, to the guy that just showed up a month ago, the answer is probably "what complacency?"

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We're right at the midpoint of the range! My point isn't really that VIX is fat or fair or cheap, more that it's pretty much all of the above -- or at least two of the above; no one's saying it's "fat" here.

It's important to keep the calendar in mind. We're back to one of those sleepy times of year. "Regular" August options expiration is this Friday, followed by the dreaded two weeks into the holiday. Of course, we had that in late June and that's precisely when we saw a big VIX spike. If anything, it makes more sense to see one now. September is a generally busy month and of course we have Fed Hikes? on tap. Guessing there's about 15,000 financial TV features about it between now and then. 

So, don't go to sleep on VIX just yet. (As if anyone needed a reminder of that!) 

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


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