VIX fell more than 30% below its 50-day trendline earlier this week
The Cboe Volatility Index (VIX) has imploded by historical measures in 2019, falling from a Dec. 26 intraday peak at 36.20 to a Feb. 22 four-month closing low of 13.51. However, a rare technical signal just flashed for the stock market's "fear gauge," which could suggest a short-term spike in volatility, if past is precedent.
According to Schaeffer's Quantitative Analyst Chris Prybal, VIX was trading 33% below its 50-day moving average earlier this week. The last time the index was at least 30% below this trendline was April 1, 2016. Overall, there have been just five other occurrences on record since 1990.
As you can see on the chart below, the VIX averaged a larger-than-usual return at all time frames going out three months. The greatest outperformance comes at the two- and three-month markers, where the VIX averaged respective post-signal returns of 21.9% and 27.5% -- and 100% win rate -- compared to anytime returns of 3.3% and 4.2%, with roughly half the returns positive.
Meanwhile, in the options pits, VIX has seen a run on calls recently. Drilling down, roughly 850,000 VIX call options changed hands on Monday, nearly three times what's typically seen. Trade-Alert highlights nearly 100,000 April 20-30 call spreads that were bought to open, signaling expectations for a VIX spike above 30 by the settlement of April VIX futures on the morning of Wednesday, April 17.
More broadly speaking, the March 20 call is home to peak open interest on VIX, with roughly 237,000 contracts outstanding. Data from the Chicago Board Options Exchange (CBOE) confirms the bulk of these positions were purchased, with traders targeting a surge north of 20 by mid-March. The last time March VIX futures printed above 20 on an intraday basis was Jan. 23, and Jan. 10 on a closing basis.
In today's trading, the August 40 call is most active, and new positions are being initiated here. Spot VIX edged higher out of the gate as stocks retreated during the drama-filled day, rising as high as 16.17 by 10:30 a.m. ET. Most recently, though, the market's "fear gauge" was trading 0.02 point, or 0.1%, lower at 15.15.
