VIX Signal Just Flashed for the Third Time Ever

More volatility could be on the horizon

Feb 28, 2018 at 2:56 PM
facebook twitter linkedin

It's been a wild ride for the U.S. stock market, with the Dow and S&P 500 Index (SPX) set to snap its longest monthly win streaks in decades -- and the Cboe Volatility Index (VIX) on track for its best monthly gain since August 2015. Amid this volatile trading environment, the VIX premium moved to a discount for the first time since October 2016 last week, and has since swung to a more extreme reading.

On Monday, the VIX discount -- which measures the difference between when spot VIX retreats south of the 20-day SPX historical volatility, indicating lower short-term volatility expectations are being priced in-- fell to negative 40.2%. According to Schaeffer's Quantitative Analyst Chris Prybal, this is just the third time ever this volatility signal has flashed.

Most recently, the VIX discount fell below negative 40% on July 20, 2016, and before that, you'd have to go all the way back to Nov. 4, 2008 -- the height of the Great Recession. The subsequent returns for the S&P 500 aren't pretty, though the numbers are skewed by the 2008 results. In fact, through all time frames out to six months, the SPX has averaged a negative post-earnings return.

spx after vix discount extreme feb 28

The VIX, on the other hand, has averaged a positive post-signal return going out four months. Most notably, at the two-week mark, the market's "fear gauge" was up 25.5% in the 10 days after the VIX discount hit negative 40%.

vix after vix discount extreme feb 28


Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 



Special Offers from Schaeffer's Trading Partners