What This Rare VIX Signal Is Saying About Stocks

The CBOE Volatility Index (VIX) has never been this discounted to S&P 500 Index (SPX) 20-day historical volatility (HV)

Aug 28, 2015 at 3:04 PM
facebook twitter linkedin

The CBOE Volatility Index (VIX) has been on a roller-coaster ride in August, with the market's "fear gauge" up 122% month-to-date -- and the majority of that advance coming during last week's record-setting run. As it stands now, VIX is up roughly 124% year-over-year, and 41% year-to-date.

Despite VIX's recent surge, it is still running at a discount to the S&P 500 Index's (SPX) 20-day historical volatility (HVs). Specifically, over the past 20 days, SPX HV has jumped 127% to 28.11, versus the Aug. 27 VIX close of 26.10.


According to Schaeffer's Quantitative Analyst Chris Prybal, it is rare to see the VIX at a discount to SPX 20-day HV while it is simultaneously so elevated. In fact, out of all of the previous "VIX discount" signals, this one involves the largest VIX advance on record.

While there was a signal in mid-July, VIX was trading at about half of where it is today -- and the discount was driven by a drop-off in SPX HV, not a VIX pop. The last time the VIX discount signal even came close to its current level was in August 2011, when the VIX was up 91%.

So, what does this mean going forward? Prybal ran the numbers, and if past is precedent, this signal could spell good things for the SPX down the road. While the broad-market barometer has averaged a three-day loss of 0.1% following a VIX discount signal, the return jumps to 4.2% looking out 126 days. This compares to an anytime three-day return of 0.1%, and 126-day return of 3.7%.



If you are not making money with options, you aren’t buying options like this…

There is no options strategy that more perfectly approaches trading the fastest moving and most volatile stocks available in the marketplace than this one. In fact, there is no strategy that better utilizes put options for optimal returns and a real trading edge over other traders in the exact same market. New options traders fail out at an incredible rate without proper trade research, execution timing, and option picking. Capitalize on Schaeffer’s 100+ years of options trading excellence with the most coveted product launch in company history. Don't waste another second... join us right now before the next round of trades are released!



Special Offers from Schaeffer's Trading Partners